Sale of land – Special condition in contract permitting incorporation of further terms into contract – Agent’s memorandum of sale confirming removal of sawmill equipment and electrical apparatus – Completion of contract – Vendor removing substantial part of electrical infrastructure – Purchasers claiming damages for breach of contract – Claim allowed – Vendor appealing – Whether term in memorandum of sale could be incorporated into contract for sale – Appeal allowed
On 4 September 1998 the respondent purchasers and the appellant vendor exchanged contracts for the sale of a site that had been used by the vendor as a sawmill. The contract was made by exchange under the Law Society’s formula B, and incorporated the Law Society’s Standard Conditions of Sale (3rd ed). Standard condition 5.1.1 required the vendor to transfer the property in the same physical state as it was at the date of the contract. The standard conditions were made subject to special conditions set out in the contract. Special condition 8 provided that in order to satisfy the requirements of section 2 of the Law of Property (Miscellaneous Provisions) Act 1989, any further terms and conditions relating to the transaction that were expressly agreed and set out in the written correspondence between the parties’ solicitors, would be incorporated into the agreement.
As part of the pre-contractual inquiries, a written reply from the vendor’s solicitors stated that, upon completion, the site would comprise only the land and empty buildings and not any of the fixtures and fittings. This letter further referred the purchasers to the agent’s memorandum of sale, which stated that "the sawmill equipment will be removed and electrical apparatus will be taken out… and wiring taken out back to the first isolator all as agreed and discussed. The vendors agreed to remove the treatment tanks".
Completion took place in late September. The vendor removed the machinery within the sawmill and a "substantial part of the electrical infrastructure at the site", but did not remove the treatment tanks prior to completion. The purchasers brought a claim for damages for breach of contract. They claimed that the vendor was in breach of its obligation under standard condition 5.1.1. The vendor counterclaimed for an order that it be entitled to enter the property and remove the treatment tanks.
The judge took the view that section 2 of the 1989 Act did not allow the removal of sawmill equipment and treatment tanks to be incorporated into the terms of the contract. He held that the requirements of section 2 of the 1989 Act could be fulfilled by "parties reaching an oral understanding, at a time when all terms are subject to contract, and on the basis that when the main contract is signed by the parties, the collateral contract with its agreed terms comes into operation". The judge concluded that a collateral contract was reached between the parties that allowed the vendor’s removal of the sawmill machinery, and the wiring from it, only so far as the first available isolator was concerned, and that this did not indicate that this would involve the stripping-out of other electrical equipment. The judge found in favour of the purchasers and dismissed the vendor’s counterclaim. The vendor appealed.
Held: The appeal was allowed in part.
1. The starting point was standard condition 5.1.1, which was subject to special condition 8. One effect of special condition 8, in conjunction with the solicitor’s reply to the pre-contractual inquiry, was to incorporate the agent’s memorandum of sale. Section 2(2) of the Act allowed the terms of sale agreed by the parties to be incorporated into the contracts "either by being set out in [those documents] or by reference to some other document".
The term in the memorandum relating to the removal of the sawmill equipment and electrical apparatus was incorporated into the documents exchanged on 4 September, and therefore became a term of the contract for sale. In order to rely upon the contract, the words "all as agreed and discussed", as found in the memorandum, were not to be treated as an attempt to incorporate some prior, but unidentified, agreement or understanding. The words were to be treated as confirmation that the sentence of which they formed part completely and accurately recorded the agreement that had been reached over the sawmill equipment and electrical apparatus. That was the natural meaning of the words in the context in which they were used.
The purpose of the memorandum was to record the essential terms of the sale that had been agreed, subject to contract, so that the parties could proceed to the exchange of contracts on the basis of that memorandum. To leave those terms to be ascertained by reference to some prior oral agreement or discussion would be to promote uncertainty and invite confusion. Further, there was nothing to suggest that either party thought, at the time, that the memorandum was not an accurate record of their bargain.
The final issue was the meaning to be given to the words in the memorandum of sale "the sawmill equipment… back to the first isolator" in the context of the agreement. The judge adopted the wrong approach. The correct approach was to ask what meaning should be given to the words used in the light of the circumstances known to the parties, but without regard to evidence of earlier negotiations or of subjective intention: Prenn v Simmonds [1971] 1 WLR 1381 applied. It was clear that the memorandum confirmed that the electrical apparatus, as well as the machinery used in the sawmill, was to be removed. The purchasers were not entitled to succeed on their claim, and the vendor’s appeal succeeded in that respect.
2. However, the vendor’s appeal failed in relation to its counterclaim. It was not entitled to remove the treatment tanks, which, being set in concrete, had become fixtures attached to the land and had merged into the freehold upon completion.
Martin Kurrein (instructed by Thursfields, of Kidderminster) appeared for the appellants; David Fletcher (instructed by Gwyn James & Co, of Lydney) appeared for the respondent.
Sarah Addenbrooke, barrister