This section is from the book "Real Property, An Introductory Explanation Of The Law Relating To Land", by Alfred F Topham. Also available from Amazon: The New Law Of Property.
When nothing is said as to the way in which the seller shall prove his title, and the contract for sale merely fixes the price which is to he paid for a certain piece of land, it is said to be an open contract.
In such a case the seller must prove his title absolutely, subject only to certain restrictions which have been introduced by the custom of conveyancers or by such statutes as the Vendor and Purchaser Act, 1874, and the Conveyancing Act, 1881.
The seller usually wishes to relieve himself from part of this duty. If so, a formal contract of sale is prepared; or if the land is sold by auction, formal conditions of sale are prepared. See p. 270.
An open contract is usually made by letters.
Thus, B (the buyer) writes, "I am willing to give you £1000 for your house, No. 10, Green Street." Signed, B.
S (the seller) replies, "I accept your offer of £1000 for my house." Signed, S.
The questions then arise.
(1) Was this contract in proper form?
(2) Was it meant to be a binding contract, or only negotiation, preliminary to a formal contract?
As to (1). Form. - The contract must comply with s. 4 of the Statute of Frauds (a), which provides -
(a) 29 Car. II. c. 3.
"No action shall be brought to charge any person upon any contract or sale of lands or any interest in them unless the agreement ... or some memorandum or note thereof shall be in writing and signed by the party to be charged or his agent."
Thus if only one party signs the contract, the other can enforce it, but the party who signs cannot.
The memorandum must show - (i.) Who are the parties.
(ii.) The price, or consideration for the contract.
(iii.) The property to be sold.
As to (i.) the names of the parties need not be set out in full, provided they are clearly described.
As to (iii.) the property need not be fully described, provided it can be clearly identified.
Bleakley v. Smith (1840), 11 Sim. 150.
The memorandum was "J. Bleakley agrees with J. E.. Bridges to take the property in Gable Street for £248 10s.
Held, evidence may be given to show that Bridges had five houses in Cable Street, and no other property in that street.
As to (2). If the parties set out all the terms of the contract in the letters and merely state that these terms are to be drawn up in formal shape, there is a complete contract when the accepting letter is posted. But if they intend other terms to be discussed and embodied in a formal contract, there is no binding contract until the formal contract is signed.
Honeyman v. Marryat, 21 Beav. 14.
M's agent wrote, "Mr. Marryat has authorized us to accept the offer made on behalf of your client subject to the terms of a contract being arranged.
Held, this was not complete acceptance of the offer.
But where all the terms are agreed and the parties merely intend that they shall be put into formal shape, there is a binding contract on the letters.
See Bonnewell v. Jenkins (1876), 8 Ch. D. 70.
The agent of Jenkins (the seller) wrote, " we are instructed to accept your offer of £800, and have asked Jenkins' solictor to prepare a contract."
Held, the letter completed the contract.
When the contract is signed, the buyer generally pays a deposit of say 10 per cent. of the price to the seller, or his solicitor.
Proof of Title. - The seller must now proceed to prove his title. His chief means of proof will be his title deeds.
The person who has the title deeds has probably not parted with the land, otherwise the person to whom he sold it would have claimed them. But this is by no means conclusive proof of title.
If the seller simply handed over his deeds to the purchaser to be examined, it would be very difficult for the purchaser to trace out the history of the land, consequently the seller is bound to make an abstract of his title, setting out shortly the material parts of each deed and each event in the history of the land in the order of date.
The buyer, or his legal adviser, then examines this abstract and compares it with the deeds. If he discovers any defects in the title, or requires anything to be explained or proved, he sends "requisitions" to the seller, requiring him to answer certain questions. If the answers are not satisfactory, he sends further requisitions, until finally either
(1) all difficulties are disposed of: then the purchaser prepares a form of conveyance which the seller executes; or
(2) the title is shown to be defective: then the buyer declines to complete the sale; or
(3) the parties differ as to whether a good title is shown or not; then they apply to the court (usually by originating summons under the Vendor and Purchaser Act, 1874) to determine who is right.
The title of the action will then be e.g. " In the matter of a contract betwen - Nisbet and - Potts," or, more shortly, re Nisbet and Potts' contract." See this case on p. 247.
If either party wrongfully refuses to complete the contract, the other can sue him for specific performance, or if the contract falls through because the seller wilfully refuses to sell, the buyer may sue him for damages for breach of contract (b).
But if the sale falls through by reason of a defect in the title the purchaser can only recover his deposit (if any) and the costs he has incurred in investigating the title. He cannot get damages for loss of his bargain.
Bain v. Fothergill (1874), L. R. 7 H. L. 158.
Rules as to the Proof of Title under an Open Contract.
The reader must understand these rules thoroughly before he can appreciate the effect of the provisions usually contained in a formal contract.
The seller must prove that he has (or will have, or can convey or procure to be conveyed) the fee simple in the land free from incumbrances.
He may of course have expressly agreed to sell only a life estate or any less estate, but if so, this must be clearly stated in the contract.