‘Subject to contract’ rule–Negotiations for sale of a piece of land ‘subject to contract’–Various questions arising in the course of negotiations which at one stage were interrupted–County court judge held that, following what he found to be the acceptance of certain conditions, there was a concluded contract–Held by Court of Appeal, applying the law as stated by Brightman J in Tevanan v Norman Brett (Builders) Ltd, that all the negotiations subsequent to the initial ‘subject to contract’ condition were governed by it–During ‘subject to contract’ negotiations parties may appear to be of one mind from time to time, but that does not mean that a contract has been concluded before the formal exchange of contracts–Parties cannot get rid of the ‘subject to contract’ qualification unless both expressly agree that it should be expunged or such an agreement is necessarily to be implied–Appeal allowed
This was an
appeal by John Penn Sherbrooke and John Vincent Armstrong, executors of Miss
Audrey Gwendoline Dennison Hargreaves deceased, from a decision of Judge
Pennant at Poole County Court in an action in which the executors were
plaintiffs. The defendants, respondents in the present appeal, were David James
Ernest Dipple and Diane Dipple, his wife. The third party was Miss Angela
Cornelia Nathalie Dorothea Baines, who was the sole beneficiary under the will
of Miss Hargreaves. In the county court action the plaintiffs sought possession
of a small piece of land on which Miss Hargreaves had allowed the defendants to
place their caravan.
plot of land to them. Judge Pennant decided in the defendants’ favour.
Stephen Parish
(instructed by Gregory, Rowcliffe & Co, agents for Slade & Co, of
Swanage) appeared on behalf of the appellants; P Towler (instructed by Turner
& Co, of Bournemouth) represented the respondents. The third party was not
represented.
Giving
judgment, LORD DENNING MR said: Near the village of Corfe Mullen in Dorset a
lady, Miss Hargreaves (who was in her 70s), owned a very nice house. It was
called Knoll Cottage. It had a garden comprising nearly an acre of land. Miss
Hargreaves had domestic help in the house. The daughter of her domestic helper
was married to Mr Dipple. They were in need of accommodation. They had a
caravan. Miss Hargreaves–out of the kindness of her heart–let Mr and Mrs Dipple
have a corner of her garden as a site upon which to put their caravan. That corner
of her garden was fenced off–and the caravan was put there. Later on Mr Dipple
‘turned (it) into a regular dump.’ He
kept heaps of hardcore on it, and an old car which was occupied by two goats.
The local
authority did not approve of this arrangement. In May 1973 they served a notice
on Mr Dipple, under their planning regulations, instructing him to remove the
caravan. But he does not seem to have complied with that notice. The caravan
remained in the corner of the garden. Mr Dipple wanted to buy the plot of land
on which it stood from Miss Hargreaves.
Miss
Hargreaves died in 1974. She left the whole of the property to her beneficiary,
Miss Baines. Her solicitors in Swanage (Mr Sherbrooke and Mr Armstrong) were
her executors. Miss Baines–thinking that she was acting in accordance with the
wishes of Miss Hargreaves–was ready to negotiate with Mr Dipple with regard to
his buying the plot of land. A price of £500 was suggested: but Miss Baines did
not insist on that. Then a price of £200 was suggested–£100 for the site and
another £100 for expenses. The solicitors wrote a letter to Mr Dipple on
January 22 1975 in which they made that suggestion, and then wrote at the end
of the letter:
Can you
please let us know by the end of the month whether this offer, which is subject
to contract, is acceptable.
Those words
‘subject to contract’ were used right at the beginning of the negotiations.
That is common practice–and it is a condition which is carried all the way
through such negotiations.
Time passed. A
question arose whether he could find £200 by November 15. He did not find that
sum by November 15. So the first phase of the negotiations concluded. Then in
March 1976 Mr Dipple revived the matter by going to the offices of the
solicitors and offering them £200 in cash. He was out of time–but they were
ready to take Miss Baines’ instructions upon it. On March 22 1976 the
solicitors wrote to Mr Dipple. They said:
. . . You
will know that (Miss Baines) is proposing to sell Knoll Cottage and is most
concerned at the effect the use of the land in question will have on her sale .
. .
. . .
However, she is prepared to proceed with the sale, subject to the following
conditions:
1. The gap in
the hedge where Miss Hargreaves had a gate at the north-western corner of the
land is excluded from the sale as shown on the attached plan and the existing
post-and-wire fence must be continued right the way across.
There would
not be much difficulty about that.
2. The
covenant in the conveyance is that there must not be any building of any kind
on the land other than ‘the stationing of one caravan.’ Please let us know what you propose to do
about the various huts you have dotted round the land.
If you will
deal with these outstanding points, we can then make some progress.
There it is.
Mr Towler told us today that, following that letter, there was an oral
conversation between Mr Dipple and the solicitor Mr Sherbrooke, in which Mr
Dipple said, ‘I agree with the conditions.’
On the other hand, the solicitor said, ‘The first condition was agreed,
but the second was not. Until the second condition was agreed, there could be
no contract.’
I will
assume–as Mr Towler asked us to assume–that the judge accepted Mr Dipple’s
evidence. Mr Dipple in evidence said that he had agreed the two conditions. To
my mind, although he said that orally, it did not make a concluded contract.
The terms of the letter of March 22 1976 showed that it was all preliminary to
proceeding with the sale. They had to clear up outstanding points before they
could make progress, particularly as to what was to be done about the various
huts which were dotted round the land. It seems to me that, even if Mr Dipple
did say, ‘I agree both conditions,’ there were still so many matters
outstanding that it could not possibly be said there was a concluded contract.
The judge
seems to have thought there was a concluded contract. He did not go into it in
detail. He only said: ‘I find that there was a contract to sell. I find that
its terms were sufficiently definite.’
But he did not spell out the contract: and he did not say whose evidence
he accepted with regard to the oral conversation. Although Mr Towler urged us
to accept the finding of the judge, it seems to me that we cannot go against
the real effect of the letter of March 22. Even if there was an oral
acceptance, it did not mean that there was a concluded contract.
Then Mr Towler
tried to make something of a later occasion when Miss Baines said she could not
go on with the sale because it would be ‘detrimental to Knoll Cottage as there
was likely to be continual friction having regard to the question of enforcing
the covenants as to the use of the land.’
Then she changed her mind, and was ready to go on again and help him.
But then there had to be a final search. When the final search was made, it
appears that the local authority were still objecting to the caravan being on
the site because it was contrary to their planning regulations. It seems to me
that nothing afterwards would amount to a contract and that is sufficient
really to decide the case.
But there is
this overwhelming point: everything in the opening letter was ‘subject to
contract.’ All the subsequent
negotiations were subject to that overriding initial condition. We were
referred by Mr Parish to a decision of Brightman J in 1972. It is the case of Tevanan
v Norman Brett (Builders) Ltd, reported at (1972) 223 EG 1945. Brightman
J said that ‘parties could get rid of the qualification of ‘subject to
contract’ only if they both expressly agreed that it should be expunged or if
such an agreement was to be necessarily implied.’ In this particular case it certainly was not
expunged. There is nothing to be implied in it. The term ‘subject to contract’ seems
to me to be a decisive answer to the claim. It seems to me that it is in
keeping with the whole matter. Solicitors would negotiate like this in this
sort of transaction, realising that everything was being negotiated ‘subject to
contract.’ I am afraid that the judge
was in error in this case in finding a contract–when, in truth, there was none.
It is
comforting to note that Mr Dipple was found a council house by the council: he
moved into it and he has been accommodated ever since. Although he has the
benefit of that accommodation, he has brought this action seeking to keep this
small plot of land in the garden of Knoll Cottage–which he has covered with
junk–for the sum of £200, when in truth it is worth a great deal more. Apart
from that, as far as Knoll Cottage is concerned, it would be very detrimental
to its value to have that at the bottom of the garden. We were told that the
difference in value might be as much as £10,000.
It seems to me
that Mr Dipple has no cause for complaint whatsoever. He is in a council house
and ought to be content with that. As I say, I think the judge was in error. I
would allow the appeal and give judgment for the plaintiffs.
Agreeing,
TEMPLEMAN LJ said: The question is whether a contract ever came into existence.
Mr Towler, who has said everything that could be said on behalf of the
purchasers, is faced with this difficulty, that at the very start of the
negotiations, by the letter dated January 22 1975, the vendor, who was himself
a solicitor, introduced the expression ‘subject to contract,’ making it quite
clear that there was to be no binding agreement until a contract had been
exchanged. In those circumstances, the law seems to me to be correctly set out
by Brightman J in the case to which my Lord has referred, namely Tevanan
v Norman Brett (Builders) Ltd (1972) 223 EG 1945. At p 1947 Brightman J
is reported as saying:
. . . when
parties started their negotiations under the umbrella of the ‘subject to
contract’ formula, or some similar expression of intention, it was really
hopeless for one side or the other to say that a contract came into existence
because the parties became of one mind notwithstanding that no formal contracts
had been exchanged. Where formal contracts were exchanged, it was true that the
parties were inevitably of one mind at the moment before the exchange was made.
But they were only of one mind on the footing that all the terms and conditions
of the sale and purchase had been settled between them, and even then the
original intention still remained intact that there should be no formal
contract in existence until the written contracts had been exchanged. He
(Brightman J) thought parties could get rid of the qualification of ‘subject to
contract’ only if they both expressly agreed that it should be expunged or if
such an agreement was to be necessarily implied.
In the present
case the solicitor gave evidence consistent with the surrounding circumstances
(it was a very sensible thing to do) that the ‘subject to contract’ limitation
was intended to be expunged not by the exchange of a contract but by the
execution and delivery of a conveyance which would of course have changed the
legal estate from the vendors to the purchasers, and that no one was to be
bound unless and until the vendors executed and delivered a conveyance; and
that they never did.
Mr Towler
relies on the letter dated March 22 1976. He says that, first of all, there was
an interruption in the negotiations; and, for a reason which I am not able to
comprehend, the second stage of the negotiations was not governed by the
earlier ‘subject to contract’ formula. Even if that were permissible, he must
then spell out of the letter dated March 22 1976, which my Lord has read, an
open offer capable of being accepted by the purchaser saying ‘I accept.’
Without going
into detail about the letter of March 22 1976, it is plain in my judgment that
that was merely a letter continuing the negotiations and there never was a
change from the original basis of the negotiations, namely, that nobody was to
be bound unless either contracts were exchanged or, as was contemplated in the
present case, the money was paid, the conveyance was executed, and the
conveyance was handed over.
Accordingly,
in my judgment, the learned judge, with great respect, fell into the error
which was adumbrated by Brightman J, namely of thinking that because parties
got near a contract or conveyance, because parties assumed that they would go
happily on until matters had become binding, therefore the ‘subject to
contract’ qualification either ceased to have effect or was replaced by a new
contract. That, in my judgment, is not the position. It is always the case that
in ‘subject to contract’ negotiations one side or both from time to time speak
as though there was a contract or would be a contract, and that is because
everybody looks on the bright side and thinks a sale is going to take place.
The fact of the matter is that for very good reasons the ‘subject to contract’
formula enables one to see at once whether there is or is not a contract–either
a contract exchanged or conveyance executed and delivered–or whether parties
are in the negotiations stage. Once one gets away from principle, then all is
difficulty, and reliance on odd conversations and letters produces uncertainty
in law.
For these
reasons I agree that the appeal must be allowed.
WATKINS LJ
also agreed that the appeal should be allowed.
The appeal
was allowed and an order for possession made against the respondents. An order
for costs was made against the respondents in the sum of £100 in respect of the
costs of the appeal and an order was made against the legal aid fund. No order
was made as to the costs below.
