OVERVIEW OF TRANSACTION
Summary
(1) Parties enter into binding contract and exchange promises
(2) In between contracting and settlement:
- Purchaser makes post-contract inquiries with government agencies as to adverse proposals (if
these exist and not previously disclosed can rescind)
- Sends requisitions on title to vendor
- Vendor prepares memorandum of transfer
- Purchaser arranges for stamp duty to be paid
- Answer own mortgage requisitions
(3) Within 6 weeks contract is settled or completed. The Vendor gives purchaser registerable
certificate of title and purchaser pays balance of price
RULES FOR AUTHORITY
Authority may be actual or ostensible
Actual authority – look at agreement between principal (P) and agent (A)
(1) Expressly conferred by P prior to negotiations
(2) Impliedly conferred by P prior to negotiations
(3) Expressly or impliedly conferred by P subsequent to negotiations pursuant to doctrine of ratification
(4) Agency of necessity (A needs to make contract in emergency to preserve P’s property)
Requirements for ratification
(1) A must describe it is a contract for P to TP
(2) P must actually adopt what A purported to do on P’s behalf
Ostensible authority – look at P’s words and conduct
Ostensible authority will exist if P’s words or conduct would lend reasonable person in TP’s position to believe
A had authority
(1) Representation
(2) Reliance
(3) Detriment
FORMATION OF CONTRACT
Requirements for binding contract
The first stage in a real property transaction is to enter into a binding contract. The requirements for a
binding contract are finality, completeness, certainty and no illusory consideration.
Finality
- Intention to be bound to an identifiable consensus on terms
- Intention is judged objectively and regard may be had to communications and conduct subsequent to the
alleged moment of formation (Lezabar v Hogan)
Completeness
- All the vital terms (parties, property, price) are settled without the need for further agreement between the
parties
Certainty
- No term is incurably vague
- Ambiguity is fine because court can choose more likely interpretation
No illusory consideration
- Consideration is illusory if one party has unfettered discretion over the performance of a term
- Example:
! ‘price determined by J’ is illusory
! ‘price determined by J but not lower than £10,000’ is not illusory
Meehan v Jones – illustration
- Facts: Contract subject to P having finance on satisfactory terms
- Held: Binding contract existed
! Finality – special condition not precedent to formation but precedent to performance
! Completeness – no need for further agreement between parties because V does not have to agree to
terms of finance
! Certainty – ‘satisfactory’ not incurably vague because import objective test
! No illusory consideration – ‘satisfactory’ does not give unfettered discretion because objective
Finality – further documentation contemplated
The issue is whether the parties have agreed to be bound or are still in negotiation. Three categories
have been identified by the High Court (Masters v Cameron) (Note: parties can reach a consensus on
terms without intending to be bound – Lezabar v Hogan)
Factors box
- Subject to – Dixon: Masters v Cameron – the words subject to formal contract raise an almost
irrebuttable presumption that the parties intend to postpone commitment until formal contract executed
- Deposit
- How many terms settled
- Legalistic language
Masters v Cameron
#1: Parties have agreed to be bound and that the formal document will simply restate the terms of their already
concluded bargain [binding]
#2: Parties have agreed to be bound but performance of one or more terms is conditional on the making of a
formal contract [binding]
#3: Parties are not bound until a formal contract is made [not binding]
Branca v Cobarro
- Facts: Sale of mushroom farm for £5000, ‘provisional agreement until fully legalised agreement drawn up’
- Held: Category 1
! No ‘subject to’
! All essential terms agreed
! Deposit paid
St Saviour’s Parish – in rare cases ‘subject to’ may have no effect if mere surplusage
- Facts: Tender successful, letter of acceptance sent by secretary marked ‘subject to contract’
- Held: Category 1
! ‘subject to’ mere surplusage:
! Another case for mere surplusage is Hall v Gilmore
Development Underwriting v Lombardo
- Facts: Parties agreed on all vital terms, 29k deposit (85k price), contemplated formal document
- Held: Category 1
! Formal contract merely a formality
Godecke v Kirwan
- Facts: Condition 6 contemplated executing further agreement containing other terms reasonably required
- Held: Category 2
! Payment of balance of price and handing over possession continual on formal doc (so Category 2)
! No ‘subject to’
! 11 terms and 3 special conditions concluded
! Document titled ‘Offer & Acceptance’
! Deposit paid
South Sydney Council v Royal Botanic Gardens
- Facts: Terms discussed in letters, letter contemplated formal document being drawn up
- Held: Category 2
! No ‘subject to’
Masters v Cameron
- Facts: Agreement ‘subject to’ formal contract ‘acceptable to my solicitors …’
- Held: Category 3
! Contract will contain terms agreed and ANY OTHER terms acceptable to solicitors
! Leave terms for further agreement
Finality – customary method not used
The customary method for entering into a binding contract is for parties to exchange identical and
signed copies of the contract. Where the parties have not used the customary method, this is strong but
not conclusive evidence that no binding contract came into existence (Allen v Carbone)
Factors to look for:
- All vital terms settled?
- How many terms settled?
- Settlement of terms you would usually expect?
- Legalistic terms used (e.g. offer, acceptance)?
Allen v Carbone
- Facts: Accepted offer by P to buy shop, no formal exchange
- Held: No binding contract
! Evidence showed contemplation of use of customary method
! No discussion of terms you would expect (apart from price)
Lezabar v Hogan
- Facts: House swap, agreement made at dinner party, no formal exchange
- Held: No binding contract
! No use of customary method
! No discussion of terms you would expect (e.g. deposit)
! Subsequent conduct inconsistent with existence of binding contract
Landsmiths v Hall
- Facts: Landlord enters into arrangement with P for lease, mistake of clerk means overlooked, gives lease to
another party
- Held: No binding contract
! No use of customary method
! For lease longer or equal to 3 years presumption is parties want formal documentation to enable lease
to be registered