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Cite as: (2007) 81(6) LIJ, p. 48

To be enforceable, most changes to contracts for the sale of land must have been approved by the client or an authorised representative in a written and signed document.

By Russell Cocks

To be enforceable, most changes to contracts for the sale of land must have been approved by the client or an authorised representative in a written and signed document.
By Russell Cocks

With any attempt to state the law, a starting place must be found. For contracts for the sale of land, a convenient start is the English Statute of Frauds in 1677.[1] Fortunately it is not necessary to trace the development of the law from that time to this; suffice it to say that the Statute of Frauds in its modern, Victorian incarnation may be found in s126 of the Instruments Act 1958 (Vic). This specifies that if a contract for the sale of land is to be enforceable by a court, the contract must be in writing and signed.

This does not mean that an agreement of a less formal character will not be a contract. For instance, an oral agreement for sale between a vendor and purchaser may still be a contract and the parties may choose to carry it through to fruition, but unless the contract satisfies the formality test of being in writing and signed, it will not be enforced by a court and either party to such a contract may walk away from it.

The primary motivation for the Statute of Frauds was, as the name suggests, to avoid fraud. Requiring a contract for the sale of land to be in writing and signed was intended to prevent one party to negotiations alleging that a final and concluded agreement had been reached when it had not, and on the other hand, to prevent a party to a final and concluded agreement denying the enforceability of the agreement.

Establishing an objective benchmark of a written and signed document was intended to ensure that parties knew they would not be bound to the negotiations until that level of formality was achieved and, conversely, would be bound when it was. Despite the apparent simplicity of the formula, the law is littered with cases involving interpretation of particular facts in the context of the objective benchmark and innumerable textbooks have been written on the topic of contract formation.

While it is common that a contract for the sale of land will be in writing and signed by the parties to the contract, the law and the statute have long recognised that the signature on the contract may be that of a third party – a person acting in some sort of representative capacity on behalf of the contracting party. For example, an attorney might act pursuant to a power of attorney, or a spouse might act on behalf of the other spouse.

The law is prepared to accept the signature of an agent (in the widest meaning of that word) on behalf of a contracting party, provided that the agency relationship is evidenced by a signed document in writing. Thus, s126 of the Instruments Act also acknowledges that an enforceable contract may be signed “by a person lawfully authorised in writing by that person [being a party to the contract] to sign”. The authority may be as formal as a power of attorney, but it may be as informal as a post-it-note, provided that it is in writing and signed by the contracting party.

Variations to the contract

Having established that a contract for the sale of land must be signed by a party or an agent, what about a variation to the contract? Logic demands that an equally onerous level of formality should apply to an agreement to vary a formal agreement and indeed the doyen of Victorian commentators on such matters, Voumard’s Sale of Land (5th edn), boldly states at p2-56: “[A] variation to a contract for the sale of land must be in writing and signed by both parties to the contract” (or, presumably, by a person lawfully authorised in writing by a party).

Leaving aside the nice legal question of whether both parties must sign (the Act only requires “the party to be charged” to have signed), it seems settled law that a variation of a contract will not be binding on a party until that party, or a duly authorised agent of that party, has signed a document recording that variation.

The strict application of that requirement would throw the practice of conveyancing into turmoil. Changes are made to contractual agreements on a regular basis to accommodate the needs of contracting parties and their financiers. Such changes are usually negotiated by solicitors or other representatives of the contracting parties and those representatives will rarely, if ever, hold an authority in writing signed by the contracting party authorising the representative to negotiate variations to the written contract on behalf of the contracting party.

To satisfy the level of formality required by the statute, the variation must be in writing and signed by the contracting party or an agent authorised in writing, not based on a telephone call ending with “OK”. While it is generally accepted that solicitors (and perhaps other representatives) who act for contracting parties have some implied or ostensible authority to bind their clients in relation to what might be regarded as the mechanical aspects of a conveyancing transaction, that authority will not be sufficient if those negotiations amount to a variation of the contract.

Indeed, the 1996 English case relied on by Voumard, McCausland v Duncan Lawrie Ltd,[2] concerned a rather innocuous change to the settlement date arising out of the fact that the original settlement date fell on a Sunday. When the purchaser’s solicitor realised this, he suggested to the vendor’s solicitor that settlement day be changed to the previous Friday and the vendor’s solicitor confirmed in writing that the vendor agreed to the change.

When a dispute arose between the parties, the court concluded that the change of date was not binding on the vendor as, among other reasons, it had not been confirmed in a document signed by the vendor or a document signed by an agent authorised in writing by the vendor. It was in writing, but that document (the letter) had not been signed by the vendor and while the document was signed by the solicitor, he had not been authorised in writing by the vendor to make or vary the contract.

The particular problem identified in McCausland may not arise in Victoria as GC.8 of the LIV/REIV copyright contract automatically extends settlement due on a non-business day to the next business day. However, if the parties wish to make some other amendment to the settlement day, such as to bring it forward by a day, this case would suggest that such a change constitutes a variation to the contract and will only be binding on the parties if the parties themselves have signed a document confirming the change, which is rare in practice, or if the solicitors who record such a change in their correspondence are themselves authorised in writing by the client to vary the contract, which is equally rare.

Another case highlighting the potentially devastating consequences of an unauthorised variation is the Queensland case of Nowrani v Brown.[3] A standard contract for the sale of land which was entered into by the vendor and purchaser included a special condition requiring council approval for a proposed development on the land. As the date for approval approached, the purchaser’s solicitor wrote to the vendor’s solicitor advising that approval was anticipated in the near future and seeking an extension of the date for settlement. After discussions, it was agreed between the solicitors that a written agreement would be prepared and signed by the parties. The vendor’s solicitor prepared the agreement in anticipation of the vendor agreeing to the extension and sent it to the purchaser’s solicitor.

However, the vendor refused to sign the agreement and despite the court being satisfied that the agreement as submitted by the vendor’s solicitor represented the agreement that had been reached by the solicitors, the court held that, in the absence of an express written authority, the solicitor did not have authority to negotiate a variation of the contract on behalf of the vendor and the vendor was therefore not bound by the agreement.

A lawyer’s lack of ability to bind a client was also illustrated by IVI Pty Ltd v Baycrown Pty Ltd,[4] where a vendor, having made an offer to sell a property, sought to withdraw that offer by communicating its withdrawal to the solicitor for the purchaser. The purchaser, independently of its solicitor and prior to communication of the withdrawal by the solicitor for the purchaser to the purchaser, accepted the vendor’s offer. The vendor sought to avoid the contract, the purchaser sought to enforce it.

The court identified the determining issue as whether the communication of the withdrawal of the offer to the solicitor prevented the purchaser from accepting the offer and concluded that the solicitor had no authority to bind the purchaser and thus withdrawal of the offer had not been communicated to the purchaser prior to acceptance. The contract was therefore enforceable.

As recently as July 2006 (in Iannello v Sharpe[5]), the general principle of lack of authority was again illustrated in the context of variation of contractual terms during the formation of the contract. The purchaser signed the contract and handed it to his solicitor. Before exchange, the purchaser’s solicitor varied the contract to comply with requirements of the vendor. When the vendor later sought to enforce the contract, the court concluded that the purchaser was not bound by the variations as the solicitor did not have signed, written authority from the purchaser to make those changes. As a result, the court concluded that no contract existed between the parties as no agreement had been reached.

The courts tend to view the representative’s role as technical in nature and restricted to “seeing the transaction through”. Even if a client involves a representative in the negotiating stage, as might be common in complex or business transactions, the representative will still not be able to bind the client in the absence of a signed, written authority. Indeed, a contract may fail to come into existence (Iannello v Sharpe[6]) or may come into existence despite purported withdrawal (IVI Pty Ltd v Baycrown Pty Ltd[7]) if the representative does not hold such an authority.

Extent of authority

From these cases it may be concluded that lawyers and conveyancers often over-estimate the extent of their authority to bind their clients. Certainly, in relation to matters concerning the creation of contractual relations, only the client is able to agree to be bound and to agree to the terms that will bind.

Even after the contract is formed, only the client can agree to any variation of the contract. Just as the formation of the contract must satisfy high formality benchmarks, so too must any variation, and unless a representative can point to a signed, written authority authorising the representative to bind the client (which will be rare), no variation agreed to by the representative will be binding on the client.

However, it is a fact of life that, once a contract has come into existence, circumstances may require changes to be made to allow the transaction to proceed smoothly or recover from unforeseen problems. Such situations may occur at any time, but tend to be near the beginning of the contract, or approaching settlement. Early uncertainties relating to the payment of the deposit or obtaining finance are common and are often the subject of change, and further changes are often required as settlement becomes imminent.

If all such changes had to be confirmed in writing by the clients, conveyancing would grind to a halt. Thus, one particular category of changes to the arrangements between the contracting parties that appears to be exempt from the rule that variations negotiated by agents must be supported by written authority is a change in the time for performance of a contractual obligation. This exception is based on the High Court case of Legione v Hateley,[8] where the Court accepted the ability of a solicitor for a party to change the time for performance of an obligation as part of the “usual aspects of conveyancing” and therefore within the authority of the solicitor.

This exception was confirmed in Inness v Waterson,[9] where it was held that granting an extension of time for settlement did not constitute a variation of the contract but rather an extension of time for performance of the contract, with time remaining of the essence, and was therefore within the authority of the solicitor.

Nowrani v Brown[10] was distinguished as “clearly a case of variation”, but it is somewhat difficult to see such a clear distinction. What was proposed was an extension of time for settlement based on the delay in obtaining council approval. This appears to fit the description of an extension for time for performance. Certainly, the solicitors in Nowrani v Brown were of the view that an agreement recording the changes should be signed by the parties, but that hardly seems to be grounds to distinguish it.

The only other change proposed was to be the payment of an additional amount by the purchaser by way of additional deposit, and perhaps this completely new obligation, not related to time of performance, may be enough to distinguish the case from those that simply record an extension of time for performance.

McCausland v Duncan Lawrie Ltd[11] was also a case relating to time of performance, but in that case time was shortened (from Sunday to the previous Friday) and so it may also be distinguished, although the distinction seems unsatisfactory, as it would follow that a change that extends time is not a variation, but one that reduces time for settlement is a variation and will not be binding unless or until agreed to in writing by the parties.

Conclusion

It may be concluded that common changes to arrangements, such as an extension of time for payment of the deposit or for loan approval, or indeed for settlement, will not constitute variations and may therefore be approved by representatives. Provided that the essential provision that time remains of the essence is not varied, such a change does not constitute a variation of the contract.

The same may be said of a change in relation to the time for settlement. In Victoria, time is of the essence as to the day, not the hour (Aussie Invest Corp Pty Ltd v Pulcesia Pty Ltd[12]), therefore a change of time on settlement day would not constitute a variation. Equally, the place of settlement is not an essential term of the contract, so a change of place would not be a variation and would therefore be capable of negotiation by a representative.

However, changes other than by way of extension of time for performance of a contractual obligation that may conceivably relate to essential terms of the contract will be regarded as variations of the contract and will not be enforceable until they have been approved in a written and signed document by the client or the representative has a written and signed authority to make such variations.


RUSSELL COCKS is the author of 1001 Conveyancing Answers and provides a consultancy to solicitors.


[1] 29 Charles II. c.3.

[2] [1996] 4 All ER 995.

[3] (1989) 2 Qd R 582.

[4] [2005] QCA 205.

[5] [2006] NSWSC 713 (reversed on appeal on other grounds: [2007] NSWCA 61).

[6] Note 5 above.

[7] Note 4 above.

[8] (1983) 152 CLR 406.

[9] [2006] QCA 155.

[10] Note 3 above.

[11] Note 2 above.

[12] [2005] VSC 362.

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