Contract of sale–New light on the effect of a condition ‘subject to survey’ as contrasted with ‘subject to contract’–Decision of considerable interest to lawyers and estate agents–Purchaser of house sought specific performance of an agreement whereby he agreed to purchase the property at a stated price ‘subject to survey’–Vendor counter-claimed that there was no concluded contract–Held, after a review of the authorities, that there was a concluded contract and purchaser was entitled to order for specific performance–Condition ‘subject to survey’ analysed–It represented a simple suspensory condition with implications that purchaser must obtain survey, must consider it and must act bona fide–Proposition that condition had same effects as ‘subject to contract’ incorrect–Judicial views to the contrary
In this case
the plaintiff, Henry Beng Lim Ee, claimed specific performance of an agreement
under which he had agreed to purchase from the defendant, Moti Ram Kakar,
‘subject to a survey of the property,’ a freehold house at 5 Warwick Road,
Twickenham, Middlesex. The defendant contended that the inclusion of the words
‘subject to survey’ deprived the document of any contractual effect. He
counter-claimed for a declaration that the document was not a legally binding
agreement and asked for a removal of a caution registered by the plaintiff
against the title together with damages for wrongful registration.
J H G Sunnucks
(instructed by Winckworth & Pemberton) appeared on behalf of the plaintiff;
G C Raffety (instructed by Burbidge & Co, of Reigate) represented the
defendant.
Giving
judgment, WALTON J said: I must first of all observe that this case has
proceeded in the absence of the defendant. I was informed by counsel on his
behalf, Mr Raffety, that he had undoubtedly been in this country on Monday,
December 10 1979, and this date was conclusively established later when Mr
Sunnucks was able to produce for my perusal a writ issued by the defendant,
acting in person, on that very day against the plaintiff in the present
proceedings. I was also informed by Mr Raffety that the defendant was believed
to be in New York, but had informed his solicitors that he would be back on
Friday, the 14th, in time for the hearing. In fact the matter came on on the
Thursday, when Mr Sunnucks opened the case for the plaintiff, and continued on
the Friday, when it proceeded in the rather irregular manner as far as it was
possible to take it, without Mr Raffety being able to produce the defendant who
was intended to be his only witness.
I then
adjourned the matter further until the first available day open to me to give
the defendant a last chance to appear. I directed that in the meantime his
solicitors should do that which I am quite certain they would have done in fact
without any such direction from me, namely, attempt to contact the defendant or
his wife at their house, attempt to contact the defendant’s son at a telephone
number which they had been given expressly for the purpose of contacting him
and, through him, the defendant, who himself has no telephonic services
available to him.
All this came
to nought and the defendant never appeared before me, not even on judgment.
The matter had
been in the warned list for some little time before it appeared on Thursday,
the 13th, in my list, and I consider that the defendant has treated the whole
matter with considerable levity. Having had all the indulgences to which I have
referred, it would have been a total denial of justice to the plaintiff to have
delayed the matter any further. Consequently, as I have already remarked, the
matter proceeded at the end of the day in the absence of the defendant.
The plaintiff
sues upon an agreement or document which purports to be an agreement in this
form:
This
agreement is made the first day of April 1978 between Moti Ram Kakar of 5
Warwick Road, Twickenham, Middlesex (herein called ‘the Vendor’) and Henry Beng
Lim Ee of 34 Onslow Road, Richmond, Surrey (herein called ‘the Purchaser’)
whereby it is agreed as follows:
1. The Vendor
will sell and the Purchaser will purchase the freehold property situate and
known as 5 Warwick Road, Twickenham, Middlesex.
2. The
purchase price shall be £14,250 and the Purchaser shall purchase the said
property with vacant possession for the said purchase price of £14,250, subject
to survey of the property.
3. The
Purchaser shall purchase the fitted carpets in the two reception rooms on the
ground floor and in the three bedrooms on the first floor for the agreed sum of
£100 only.
That is then
signed by Mr Kakar and Mr Ee, and there is in fact a witness, who I understand
was a neighbour, but nothing turns upon that because the actual execution of
that document has never been in issue.
I am quite
satisfied as a result of the evidence of the plaintiff and his wife, both of
whom were very good witnesses, totally unshaken in cross-examination, that:
1. Both
parties, plaintiff and defendant, intended that the document which I have read
should form a binding contract between them.
2. That there
was no such term, as is alleged in the defence herein, that the same would not
constitute a legally binding agreement until a formal contract was in fact
prepared by the defendant and approved by the plaintiff’s solicitors and
exchanged by the parties. It is perfectly true that at a later stage the
plaintiff’s solicitors did indeed write a letter to the defendant in this form:
Dear Sir,
5 Warwick
Road, Twickenham
We confirm our
telephone conversation with you this afternoon when you informed us that you
had only received the office copy entries from the Land Registry yesterday.
We are,
however, most surprised that you appear to be wanting us to exchange Contracts
on behalf of Mr Ee before having an opportunity to inspect title to the
property.
We are also
surprised that you appear to believe that Mr Ee will be paying a 10 per cent
deposit as soon as we receive the office copy entries without investigating
properly and without making proper searches. We would also like to point out
that even upon payment of the 10 per cent deposit you will not be able to use
the money until completion.
We do,
however, believe we can complete this purchase reasonably quickly after
properly investigating the title.
However, I do
not think that this affects the position between the parties in any way
whatsoever. Solicitors have no ostensible authority on behalf of clients either
to make or to discharge contracts, and they were not even in that letter
purporting to do so.
As the further
correspondence shows, they shortly thereafter called upon Mr Kakar to perform
the open contract into which they said he entered in the form of the document
of April 1 1978.
3. That there
was no suspensory oral agreement made on April 1 1978, or at all, as alleged in
the defence to the same effect.
4. That the
plaintiff made no misrepresentation to the defendant whatsoever.
5. That the
reason for the inclusion of the words ‘subject to survey’ was that, although
the plaintiff was in a position to raise the necessary purchase money from a
number of different sources, he wished, if at all possible, to raise the
purchase money or some of it, from a building society, and he was well aware that
they would require a satisfactory survey.
Mr Kakar had
had a previous purchaser who had fallen out, a Mrs Constable, who had had a
survey done on behalf of the Halifax Building Society, which was the one with
which the plaintiff proposed to deal. Mr Kakar said that the property was sound
and that the survey confirmed this. The plaintiff naturally wished to be
certain that Mr Kakar had not misrepresented the effect of the survey.
The defendant
repudiated the agreement by letter dated May 31 1978. The writ in the present
proceedings was issued on August 16 1978.
I have already
indicated the only matters of moment contained in the defence, save for the
allegation that the inclusion of the words ‘subject to survey’ has the effect
that the document of April 1 1978 is of no contractual force or effect
whatsoever. There is a counterclaim for a declaration accordingly that the
document is not a legally binding agreement, for the removal of a caution
registered by the plaintiff against the defendant’s title in relation thereto
on April 17 1978 and damages for wrongful registration of that caution.
As is apparent
from the foregoing brief narrative of events, at the end of the day there is
one and only one crucial question in the case, namely, what is the effect of the
words ‘subject to survey.’ I therefore
now turn to that crucial
contract.
It is said
that the words ‘subject to survey’ are in law equivalent to the words ‘subject
to contract’ and produce the same result. This is, indeed, what was said in so
many words by Cohen LJ in Graham and Scott (Southgate) Ltd
v Oxlade [1950] 2 KB 257 at p 261.
Mr Stanley
Rees, for the plaintiffs, submitted that the distinction between ‘subject to
contract’ and ‘subject to survey’ is a distinction without a difference, since
under a provision ‘subject to contract’ an intending purchaser could refuse to
sign the contract if he were dissatisfied with a survey. With this view I
agree. I turn, therefore, to consider what is the state of the authorities on
the subject.
Put like that,
the logic is something less than compelling. Under a provision subject to
contract, an intending purchaser could refuse to sign a contract if he took a
spite against the intending vendor, a circumstance which has no conceivable
connection with a survey. But in fact this is not what Mr Stanley Rees did in
fact submit, nor what I think, Cohen LJ really meant. What Mr Stanley Rees
submitted was that, for the purposes of his argument, there was no difference
in law between the two phrases, and I think that this is what Cohen LJ was
accepting. The question there was whether an intending purchaser, introduced by
an estate agent but who made only an offer qualified by either or both phrases
was a person who was at that stage willing to purchase the property. The
question has only to be asked to be answered in the negative, and the case was
only ever launched because of some curious decisions in a contrary sense. I do
not think that, at the end of the analysis, I obtain any real assistance from
that case.
The case at
first sight which appears to be dead in point is, however, Marks v Board
(1930) 46 TLR 424. I think I must read the main bulk of the judgment of Rowlatt
J in full.
The case was
a rather unfortunate one in which the plaintiff had to fail because there was
no contract which he could enforce. There was a document which was called a
‘memorandum of agreement.’ It was a
formal sort of document, bearing a stamp, and signed by the agents for the
vendor and by the plaintiff, but it contained the words ‘subject to surveyor’s
report.’ The whole thing was subject to
that; it was perfectly well understood in this business with regard to houses
that, when a person said that he would buy ‘subject to surveyor’s report,’
although he agreed everything else, what it meant was that he would not decide
whether he would take the house until he had seen what his surveyor said about
it, and that he reserved to himself the absolute and undisputed right to say whether
he liked the surveyor’s report. In short, there was no contract, because the
buyer was not yet bound and, therefore, the seller was not bound either.
A document of
that sort was put forward by agents in an endeavour to clinch the deal and was
made to look like an agreement. There was a stamp put on it, and sometimes both
parties were deluded into thinking that it was an agreement when they did not
want to think so. He did not think that that ought to be done by house agents.
When they did give a binding contract they should provide for the payment of
the deposit and say what was to happen to the deposit if the contract went off.
That was the proper way of doing the business. To take a deposit when there was
no contract was a confusion which led inexperienced people into being misled.
The nub of the
judgment is contained in the few words which I now repeat:
There was no
contract because the buyer was not yet bound and, therefore, the seller was not
bound either.
It appears to
me to be well settled that, in order to constitute a contract, there must be
consideration on both sides. Consideration consists in the suffering of
detriment by the person furnishing the consideration, not necessarily in a
benefit to the other party to the contract. I need do no more than refer to Currie
v Misa (1875) LR 10 Exch 153.
The oddity of
the decision, as I see it, in Marks v Board as Rowlatt J
recognised, as I should in any event have thought would have been obvious, is
that as a result of the–I shall use the neutral word–document in question, the
purchaser became bound to obtain a surveyor’s report. In other words, he was
not free simply to say, ‘I am not going on with the transaction,’ although,
doubtless subject to a qualification I shall pose hereafter, he was free when
he had received the report to come to his own conclusion as to whether he was
satisfied with it or not. Looking further ahead, if the purchaser had not
obtained such a report within a reasonable time, it would then, I should have
thought, have been too late for him to resile from the document. He would have
waived this condition completely.
If that be
correct, then the purchaser does furnish consideration. He has to obtain a
surveyor’s report, and that will cost him money, and money which will not be de
minimis either. He has therefore suffered detriment; and so given
consideration. Hence, it appears to me that the inevitable conclusion is that,
the document being otherwise on its face intended to take effect as a contract,
it will do so.
So far as I am
aware, there are only two cases in which Marks v Board has been
referred to. The first is a decision of Russell J as he then was in Batten
v White (1960) 12 P&CR 66; 175 EG 697. This was a case where the
document contained the words ‘subject to planning permission to develop and
satisfactory drainage.’ There were some
obvious difficulties inherent in this phrase, which were disposed of by the
learned judge in this wise:
I do not
think that there is really any uncertainty on what is meant by ‘planning
permission to develop’ or by ‘and satisfactory drainage.’ Both sides knew that the plaintiff planned to
develop by building houses, that planning permission was required for that, and
that there was a particular problem connected with sewage capacity which might stand
in the way of the plaintiff’s aim.
Mr Sunnucks
urged upon me that I should follow this passage by interpreting the phrase
‘subject to survey,’ used in the document of April 1 1978 in the light of the
discussions which preceded its formation, and thus, in effect, to read the
phrase as meaning that which both parties undoubtedly understood it as meaning,
namely, subject to a survey sufficiently satisfactory to persuade the building
society to advance the required moneys. I do not, however, consider that I am
at liberty to substitute for the expression actually used by the parties
different language having a more restrictive context, nor am I confident that
the parties would ever have been agreed upon the precise phrase to be
substituted. The general idea was well understood, but it was left, perhaps
wisely, in the form I have indicated, and it is that form which falls to be
construed.
Russell J proceeded
in Batten v White as follows:
It is also
urged for the defendant that if this is a term of the contract, the defendant
would remain bound and unable to realise the value of his property for an
indeterminate or possibly indefinite period, whereas the plaintiff would in
substance not be bound, since he was not obliged in terms to take any steps by
any particular time, or, if he wanted to back out, could even put up for
consideration a lay-out which would be certain to be rejected by the town
planning authority. These arguments do not persuade me that the relevant phrase
should not be regarded as a part and term of a contract. If it be such a term,
it must, I think, follow that the purchaser must proceed with due diligence and
in a bona fide manner to seek the relevant permissions. It is perhaps
worthy of comment that the professional firms concerned appear in the
subsequent correspondence to have been prepared to regard with equanimity the
contractual nexus on the basis of [the document]. I note here that there is no
suggestion that the plaintiff did not pursue planning permission diligently and
bona fide.
This suggests
to me that in the case of the use of the words ‘subject to survey’ the options
open to a purchaser may not be quite as sweeping as Rowlatt J thought. It is
perfectly true that, later in the case, commenting upon Marks v Board
which he did not think assisted him, Russell J said this:
I do not
think that that case assists me. I think there is all the difference in the
world between that case and this.
If there be
such a reference to a surveyor’s report, it is obvious that there cannot be any
moment of time when the purchaser could in practice be bound. It can only mean
subject to a surveyor making a report and to the purchaser, having seen that
report, being still minded to buy. The surveyor’s report, which could be
described as not only covering without qualification every conceivable aspect
of building, but also giving each aspect 100 per cent marks (even if 100 per
cent is capable of definition), has yet to be seen–certainly if he is
instructed by a proposed purchaser. It is easy to see, therefore, why such a
phrase is properly regarded as a badge of no contract. In the present case, the
requirement of planning permission is different in quality, and a reference to
satisfactory drainage is no more than a particular aspect of planning
permission.
However, I can
myself see no reason why, although of course retaining the right to be
satisfied with any kind of report, a purchaser should not be bound, if
presented with a report which is basically a satisfactory one, to have to act bona
fide, just as he must, as I take it, in any event, proceed with due
diligence. Although the two tests are quite clearly not the same, if a
reasonable man would be satisfied with the report, I should have thought that a
purchaser would experience some difficulty in persuading a court that his
failure to proceed with the contract was bona fide.
The other case
is a decision of Megaw J, as he then was, namely, Astra Trust Ltd v Adams
[1969] 1 Lloyd’s Rep 81. Here there was a sale of a ship subject to a
satisfactory survey, and the learned judge concluded that there was no
contract, following Marks v Board. However, he proceeded,
admittedly obiter, to hold that, if there was a legally binding
contract, it was conditional upon a survey satisfactory to the plaintiffs, that
it was an implied term that dissatisfaction must be bona fide, and that
on the facts before him, not only was that dissatisfaction bona fide, it
was also satisfied on an objective test.
This case of
course reinforces the view I have tentatively expressed above, based on the
passage from Russell J that the purchaser must act bona fide.
Megaw J did
not add anything to the analysis of Marks v Board. He simply said
he regarded neither side as being bound and there was therefore no contract.
This case, therefore, takes the matter no further.
I can
therefore conclude that, loath as I am to differ from two such experienced
judges as Rowlatt J and Megaw LJ, the arguments which have appealed to me were
not advanced, so far as I can establish, before them. Had they been, I feel
they must have been decisive.
There is also
another possible analysis of the legal situation which can be made, which leads
to the same result. In Lee-Parker v Izzet (No 2) [1972] 1 WLR 775
the contract for sale contained the clause:
Subject to
the purchaser obtaining a satisfactory mortgage.
This clause
was, indeed, and obviously, held to be void for uncertainty, but it was first
analysed as constituting a condition precedent.
Now it is well
settled that a contract may be made subject to conditions precedent, for
example, Aberfoyle Plantations Ltd v Cheng [1960] AC 115, Smallman
v Smallman [1971] 3 All ER 717, in both of which cases the condition precedent–in
one case fulfilled and the other not–was contained in the contract.
So far as I am
aware, it has never been suggested that, provided the condition is not void for
uncertainty, its form or any question of consideration is of any materiality.
So here, provided that it is a real condition, I see no reason why the
condition ‘subject to survey’ should not represent a simple suspensory
condition, suspensory of a contract as to which there can be no question as to
the consideration furnished by each side.
Of course I
would readily agree that, if the condition was an illusory one, that is to say,
the fulfilment of which was wholly at the whim of one party, the case would be
different. But the condition as to survey is not, because, at the least, the
purchaser must obtain the survey and consider it and, in my judgment, also act bona
fide.
So, looked at
from this slightly different point of view, it also appears to me that the
document of April 1 1978 was a perfectly valid and binding contract.
I think the only
other point in the case which arises, arises from the fact that the statement
of claim, somewhat oddly, pleads waiver of the condition rather than
fulfilment, which I gather is what in fact happened. It is of course well
settled that a party to a contract can waive a condition wholly in his favour;
see, for example, Heron Garage Properties Ltd v Moss [1974] 1 WLR
148. This form of the pleadings afforded Mr Raffety an opportunity of arguing
that the condition in the present case was not one exclusively in favour of the
plaintiff, but that, as the defendant was also clearly interested in the
condition of the property, it was one in favour of both parties, and hence one
which could not be unilaterally waived in this manner. I cannot, I am afraid,
accept this submission.
To test it,
suppose that the plaintiff had obtained a surveyor’s report, which, let us
suppose, had stated that the property was in a deplorable condition, but that,
as a result of some wholly extraneous factor, plans to build a swimming pool
nearby, the property had become an absolute bargain at the contract price. What
would there be in the contract to prevent the plaintiff notifying the defendant
that the survey was acceptable to him and he was proceeding to go ahead with
the transaction? So far as I can see,
nothing. There is no provision for disclosure of the report to the defendant
under any circumstances at all.
It follows, in
my judgment, that the plaintiff in the present action succeeds on all counts.
An order for
specific performance was made in the plaintiff’s favour, the defendant to pay
the plaintiff’s costs of the action. The defendant’s counterclaim was dismissed
with costs.