Posts Tagged ‘formalities’

England: oral agreements and the common intention constructive trust

February 19, 2017

In Matchmove Ltd v Dowding ([2016] EWCA Civ 1233, CA (Eng)) Matchmove (a company controlled by F, a property developer) was negotiating for the purchase of a plot of land (‘the land’) and the adjoining meadow. F intended to split the land into two plots and to build a house on each plot. He orally agreed with his friend D that D would buy one of the plots and the meadow (D wanted to keep horses on the meadow).

In due course, Matchmove entered into a written contract for the sale of the plot to D and this sale was completed. There was, however, no written contract for the sale of the meadow to D. F and D fell out and F sought to resile from the oral agreement to sell the meadow to D.

D sought a declaration that Matchmove held the meadow on trust for him. Matchmove denied the existence of a binding agreement for the sale of the meadow. It relied on the lack of a signed written agreement to satisfy section 2(1) of the Law of Property (Miscellaneous Provisions) Act 1989.

F had intended the oral agreement concerning the meadow to be immediately binding. He was well known by D to have a business approach that attached real importance to his word as a businessman. By the time of the dispute, D had paid the entire purchase price for the meadow to Matchmove.

In these circumstances, the question was whether the agreement gave rise to a common intention constructive trust that could fall within section 2(5) of the Law of Property (Miscellaneous Provisions) Act 1989.

The Court of Appeal referred to Arden LJ’s discussion of this question in Herbert v Doyle. There, Arden LJ said that section 2(5) could  not be relied on:  (1) if the parties intend to make a formal agreement setting out the terms on which one or more of the parties is to acquire an interest in property; (2) if further terms for that acquisition remain to be agreed between them so that the interest in property is not clearly identified; and (3) if the parties do not expect their agreement to be immediately binding.

The Court of Appeal did not see this statement as setting out three conditions to be satisfied but as being three ways of making the same point about the effect of the judgment in Cobbe v Yeoman’s Row ([32]).

There was a clear express agreement between the parties. Although both parties were well aware that a written contract would be needed, they regarded this as a technicality and took the view that they already had a binding agreement. The payments made by D provided the detrimental reliance.

There was a common intention constructive trust that fell within section 2(5). D could enforce the oral agreement for the purchase of the meadow.

Michael Lower

 

 

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Common intention constructive trust: when is the agreement ‘subject to contract’?

December 10, 2016

In Ely v Robson [2016] EWCA Civ 774 (CA, Eng) E and R co-habited in a property the title to which was in E’s name. When the relationship between E and R broke down, E began possession proceedings and R counterclaimed that she had a beneficial interest in the property under the terms of a common intention constructive trust. The couple met and orally agreed a relatively complex settlement under the terms of which E would hold the property for himself for life with the remainder interest belonging 80% to his children and 20% to R. There were terms governing the payment of outgoings, the right to occupy the property and the compromise of E’s claims to other properties owned by R. It was accepted that the terms of the arrangement would be reflected in a trust deed and that the precise form of the agreement was provisional since, amongst other things, the tax implications of the way in which the deal was structured would need to be considered. E did not pursue the proceedings any further given R’s acceptance of the settlement.

R claimed that the settlement was not binding on her since it was not incorporated in a signed, written agreement satisfying section 2(1) of the Law of Property (Miscellaneous Provisions) Act 1989. E argued that R was bound by the agreement on the basis of either a common intention constructive trust or proprietary estoppel.

For the purposes of the judgment, the English Court of Appeal  (Kitchin LJ giving the judgment) assumed that R, prior to the agreement, had a beneficial interest in the property under a common intention constructive trust. It reminded itself of Lord Scott’s approach in Cobbe v Yeoman’s Row to the use of proprietary estoppel in the context of agreements concerning land that did not satisfy section 2(1). Lord Kitchin also referred to the passage of Arden LJ’s judgment in Herbert v Doyle concerning such agreements. There is no common intention constructive trust where:

  1. a formal written agreement is anticipated; or
  2. further terms remain to be agreed so that the interest in property to be acquired is not clearly identified; or
  3. the parties did not expect their agreement to be immediately binding.

In these situations, if the agreement is incomplete, the parties cannot rely on constructive trust or proprietary estoppel (Herbert v Doyle, Arden LJ [57]).

The Court of Appeal rejected R’s contention that these requirements were not satisfied in the present case:

  1. although a formal written agreement was contemplated, nothing was said or written that precluded the possibility that a binding compromise had been agreed in the meeting between the parties (‘This was not a commercial transaction.’); and
  2. there were no terms still to be agreed; and
  3. the terms were sufficiently clear to constitute a binding agreement.

E relied on the agreement to his detriment by: not pursuing the possession proceedings; abandoning his claims to R’s other properties; and allowing R to remain in possession. Consequently, E held the property on constructive trust in accordance with the terms that had been agreed.

Michael Lower

Vague arrangements as to the completion date

October 15, 2016

In Tsang Wing Man v  Chung On Ling ([2016] HKEC 2164, CA) D agreed to sell his property to P. Completion was to be within 3 days of P’s sale of her own property. It was held that this arrangement was so vague and uncertain as to be of no legal effect. As a result, there was no agreement as to the completion date. As indicated in Kwan Siu Man v Yaacov Ozer, this was strong evidence that there was no contractual intent. P had later given an oral promise to complete by the end of August 2011. This did not help matters since the need to resort to an oral term meant that there was a failure to comply with section 3(1) of the Conveyancing and Property Ordinance.

Michael Lower

Resulting or express trust?

October 28, 2015

In Ng Tak Kau v Cheung Man Kwai ([2015] HKEC 1942, CFI) title to the family home was conveyed into the names of a father and son as joint tenants. When the son ran into financial difficulties, the son assigned his interest in the property to the father. The son’s major creditor argued that this assignment was voidable under section 60 of the Conveyancing and Property Ordinance (on the basis that it as entered into with the intent to defraud creditors).

The first question that the court had to consider was whether the father was the sole beneficial owner. The evidence showed clearly that he had provided the entire purchase price and that, although the presumption of advancement arose, there was no intention to make a gift to the son. There was clear evidence of an agreement (reached with the concurrence of other family members) that the son’s name was on the title purely with a view to ‘easy administration of family assets’ in the event of the father’s death ([19]). Thus, the son had no share and the transaction was merely the exercise of the father’s rights as sole beneficial owner. The creditor’s claim failed. There was no question of estoppel since the creditor did not rely on any belief as to the son’s ownership when making the loan to the son.

It is perhaps surprising that the conclusion was that there was an express trust in favour of the father ([40]) given the lack of writing to evidence the trust (as required by section 5(1) of the Conveyancing and Property Ordinance). The analysis had been couched in resulting trust terms and could easily have been thought of as a common intention constructive trust.

Michael Lower

The common intention constructive trust is an express trust

August 5, 2015

In Yip Yuk Kwong v Yip Chun Yin ([2015] HKEC 1312) title to property was in the names of a mother and son but (along with the father) the common intention was that the parents were the beneficial owners. The son’s name was on the title only because he was a solicitor and the firm that employed him would do the conveyancing at a concessionary rate if he were one of the buyers. The father made all the mortgage payments. The son became bankrupt in 1998 and he immediately asserted that he was only a trustee of the property. The court was satisfied that the common intention existed. It might have been better had there been a written declaration of trust but the purpose of the common intention constructive trust is precisely to allow the failure to comply with this formality to be overlooked ([18] per Deputy Judge Saunders).

Michael Lower

Agreement to transfer beneficial interest: proprietary estoppel as a way of circumventing a failure to satisfy the formalities

July 1, 2015

In Sum Fan Hung v Chum Mei Diu ([2015] HKEC 1100, CFI) the plaintiff and the defendant were sisters. The plaintiff bought a flat in 1997. Title was in the defendant’s name but there was no dispute that the property was held on trust (presumably a common intention constructive trust) for the plaintiff. In 2000, the plaintiff found she could no longer meet the mortgage payments. She orally agreed with the defendant that the defendant was to become the sole legal and beneficial owner of the property. In return, the defendant would take on all liabilities relating to the property without any right of recourse to the plaintiff.  This agreement was not recorded in writing signed by the plaintiff. This was a problem since section 5(1)(a) of the Conveyancing and Property Ordinance requires assignments of equitable interests in land to be in writing and signed by the assignor or an authorized agent. This problem was circumvented by dealing with it as a proprietary estoppel case. The agreement provided the assurance and the plaintiff’s later payments (of mortgage payments and so on) provided the detrimental reliance. The court declared that the defendant became the sole legal and beneficial owner from the time of the agreement. Proprietary estoppel circumvented the failure to satisfy the formality requirements.

Michael Lower

Signature requirement satisfied where written document intended to have contractual effect

July 25, 2013

In Leeman v Stocks ([1951] Ch 941) property was sold at auction. The auctioneer got the purchaser to sign a contract. He then reported to the seller on what had happened and the seller did not object. The contract was not signed by or on behalf of the seller. The wording of the printed contract ended with the words ‘As witness the hands of the parties’ and so seemed to envisage hand-written signatures. The seller later refused to proceed and the buyer sought specific performance.

The purchaser succeeded despite the lack of the seller’s signature. It was enough that the written contract was clearly regarded as the authorised and formal embodiment of the parties’ contractually binding intention and that the seller’s name was written in the contract. By requiring the purchaser to sign the contract, the auctioneer (as agent of the seller) was recognizing the name of the seller written in the contract as the seller’s signature.

While the contract seemed to require the parties’ hand-written signatures, this did not matter where there was evidence to show that neither party actually contemplated that there would be such a signature.

Michael Lower

No hand-written signature to contract where a signature is clearly anticipated

July 23, 2013

In Hubert v Treherne ((1842) 3 Man & G 743, 133 ER 1338) the parties entered into a contract that had to comply with the Statute of Frauds (and so had to be signed by them or on their behalf). The parties were identified by name at the beginning of the written contract. The contract ended with the words, ‘As witness the hands’ but no signature followed.

The court held that there was no signature. The problem was that the closing words (‘as witness the hands’) indicated that the parties intended to add hand-written signatures. The lack of such signatures was therefore fatal.

There was a difference of opinion as to whether the outcome would have been the same had those words (‘as witness..’) not appeared. Would it be enough that the names of the parties appeared in the body of the contract? At least two of the judges thought that this would be enough if it was clear that the written contract was a proper and authorised version of a concluded agreement. Another thought that this would not be enough since this degree of tolerance would effectively write the signature requirement out of existence.

Michael Lower

SMS as a written memorandum of a contract?

May 15, 2012

In Distinct Fortune Ltd v Hyndland Investment Co Ltd ([2011] 1 HKLRD 817) P agreed to buy property in Tsim Sha Tsui from D. P signed a provisional agreement and paid earnest money. D did not sign a provisional agreement but preferred to sign a formal agreement prepared by the parties’ respective solicitors. The parties’ solicitors then corresponded with each other to negotiate the terms of the formal agreement. All correspondence was ‘subject to contract’. There were two or three telephone conversations between the parties’ solicitors and between the parties’ agents in which the terms of the formal agreement were settled.  D’s representative sent P’s representative a text message to say that P would tell his solicitors to go ahead with the deal. The SMS read ‘Kim said he’ll give instruction to pig to go ahead with the deal’. Kim was a director of D and ‘pig’ was the solicitor acting for D. The next day, D’s solicitors sent out an engrossment of the formal agreement for signature by P. The engrossment was sent out under cover of a letter marked ‘subject to contract’.  P signed the formal contract and returned it to D’s solicitors with a cheque for a further deposit. D’s solicitors returned the contract and the deposit payments since D had decided against proceeding with the transaction. P sought specific performance and D countered that there was no written contract or memorandum to satisfy section 3 of the Conveyancing and Property Ordinance. P relied on the SMS message  (read together with the engrossment of the formal agreement) as the memorandum. Alternatively it argued that returning the signed formal agreement together with a cheque for the deposit amounted to part performance. D succeeded in having the action struck out on the basis that there was neither a memorandum nor part performance.

There was no memorandum. The SMS  could not simply be read together with the formal agreement to form a memorandum since the formal agreement was accompanied by a ‘subject to contract’ letter. The reference in the SMS to the intructions to be given to D’s solicitor would include the instruction to send the agreement with a ‘subject to contract’ letter. The SMS merely referred to ‘the deal’ and so there was not enough detail to forge a link with the engrossed formal agreement. Another problem was that the formal agreement was not in existence at the time of the SMS. Further, the SMS could not be a memorandum since it did not in any sense purport to be signed by D’s representative.

Nor was there part performance; the acts of submitting the signed formal agreement with a deposit were acts preparatory to a contract and not part performance of it.

The case for saying that an oral agreement had been concluded was very weak. The solicitors had been careful to label all of their letters to each other ‘subject to contract’ and to declare that their respective clients were not to be bound by anything said in the correspondence until both parties had signed a formal agreement. Properly understood, the conversations between the parties had not crossed the boundary between negotiations and a concluded contract. The court would not have struck out the action on this basis, however, since a full consideration of the facts would be necessary.

Michael Lower

Reading two documents together to form a memorandum satisfying CPO, s.3

September 24, 2010

Section 3 of the Conveyancing and Property Ordinance requires that land contracts either be in writing or that there be a written memorandum of the terms of a contract that was concluded orally. The contract or memorandum has to be signed by ‘the party to be charged’ (the party trying to escape from performance of the contract).

It is permissible to read two documents together in order to produce a memorandum satisfying section 3. So, in Timmins v Moreland Street Property Co Ltd ([1958] Ch 110) a buyer and seller orally agreed terms for the sale of land in London. A director of the buyer gave the seller a signed cheque for the agreed deposit. The seller then gave him a receipt that identified the parties, the property and the price and made it clear that a contract had been concluded. The buyer wanted to escape from the contract and the seller sought damages for the repudiation of the contract.

One of the buyer’s defences was that there was not a memorandum to satisfy the (now repealed) English equivalent of section 3 of the Conveyancing and Property Ordinance. The receipt was not signed by the buyer. The seller contended that it was possible to read the cheque (signed on behalf of the buyer) together with the receipt.

The buyer’s defence was successful. The English Court of Appeal reiterated the requirements to be met before two documents can be read together to form a memorandum. Jenkins LJ suggested that the two documents must be ‘so manifestly connected without the aid of oral evidence as to justify their being read together.’ (at 129).

This was not so in the present case:

‘But before a document signed by the party to be charged can be laid alongside another document to see if between them they constitute a sufficient memorandum, there must, I conceive, be found in the document signed by the party to be charged some reference to some other document or transaction.’ (at 130)

The cheque contained no reference to the receipt and so they could not be read together.

Michael Lower