Necessary formalities

The recent sheriff court case of Fullarton v Smith 2011 GWD 25-567 concerned a damages claim following a delayed conveyancing transaction in Saltcoats. It illustrates the importance of formally agreeing any change in the missives.

The missives, and after

Mr and Mrs Smith had entered into missives to purchase a house from Mr Fullarton, with a date of entry of 4 July 2008. The missives contained a non-payment clause which stated: “In the event of the purchase price or any part thereof remaining outstanding as at the date of entry, then notwithstanding consignation or the fact that entry has not been taken by your clients [Mr and Mrs Smith], your clients shall be deemed to be in material breach of contract and further interest will accrue at the rate of 4 per centum per annum above the Bank of Scotland base lending rate from time to time until full payment of the price is made”.

A further clause provided that the missives would be legally enforceable for two years from the date of entry, stating: “This offer and the Missives following hereon will form a continuing and enforceable contract notwithstanding the delivery of the disposition except in so far as fully implemented thereby. But the said missives shall cease to be enforceable after a period of two years from the date of entry”, except in so far as founded on in any court proceedings commenced within that period.

The Smiths did not take entry or make payment until 28 November 2008. On 18 November, the Smiths’ solicitors wrote to Mr Fullarton’s solicitors asking him to agree to an entry date of 28 November. The response of 26 November said Mr Fullarton was prepared to settle on 28 November, and specifically reserved his right to recover his losses for the delay between entry dates.

The following day the Smiths’ solicitors wrote: “As you are aware, our clients are now in a position to perform the contract... We confirm that we are in a position to pay the purchase price on the revised agreed date of entry of 28 November 2008, in settlement. We note that your client reserves his right to recover his losses from Mr & Mrs Smith in terms of the original missives entered into between the parties and our clients acknowledge these terms of settlement.”

Mr Fullarton raised an action for breach of missives on 24 November 2010, more than two years after the original date of entry, but less than two years from the date on which the Smiths actually took entry.

Competing submissions

The Smiths submitted that the case was time barred. The date of entry was 4 July 2008, and so the two year period had expired on 3 July 2010. As no change in writing was ever agreed to the missives, the date of entry remained 4 July 2008. The Smiths also contended that even if Mr Fullarton successfully argued that the date of entry had been moved to 28 November 2008, they could not be in breach of missives as they had made payment on that date of entry.

Mr Fullarton argued that the date of entry had been changed to 28 November and he had reserved his right to claim damages arising from the delay. The Smiths’ correspondence had revised the agreed date of entry to 28 November and reliance could be placed on that in terms of s 2(3) of the Requirements of Writing (Scotland) Act 1995, which allows for unsigned documents to be used as evidence.

Lack of formalities

The sheriff found in favour of the Smiths. Any change to the date of entry in the missives would need to adhere to certain formalities, which were not met. The Smiths’ solicitors request in their letter of 18 November 2008 had not been accepted and the date of entry in the missives was not corrected; the reply merely stated that Mr Fullarton was willing to settle the transaction at a later date.

Although the disposition stated: “WITH ENTRY and vacant possession as at 28 November 2008 notwithstanding the date or dates hereof”, the sheriff’s decision was that this did not change the date of entry in the missives: it merely agreed the date the Smiths became heritable proprietors. The claim was time barred.

Even if that was not the case, and the date of entry was 28 November 2008, there was no breach by the Smiths. For Mr Fullarton to have had an entitlement to damages following on a new date of entry being agreed, a separate agreement ought to have been entered into, agreeing that the Smiths would be responsible for all losses incurred by Mr Fullarton between 4 July and 28 November 2008 as a result of the Smiths’ delayed payment.

Comment

This case is a clear reminder of two important practice points: first, to ensure that any claim is raised timeously and, secondly, to ensure that the contract is formally varied if that is what is intended. Informal or semi-formal correspondence is not sufficient to vary a formal contract. The difference between agreement and contractual agreement is often in the formality.