Wednesday 3 September 2008

Exchanging Contracts

A binding contract comes into existence on exchange of contracts, after which neither party can withdraw incurring the liability for breach. Therefore necessary to check all o/s queries have been dealt with before exchanging (‘the point of no return’) .
The actual time when a contract comes into being depends on the method used to effect exchange.

Authority to exchange: Once a solicitor has his clients authority to exchange he may then do so choosing which ever method he deems appropriate. Exchanging without clients authority can lead to the solicitor being liable to the client in negligence.

Exchange usually initiated by the buyer indicating the buyer is ready to commit himself. Where the purchase of one property is dependant on the sale of another the solicitor must ensure that exchange of contracts and completion are synced in order to avoid leaving the client with two houses or none at all.

Telephone exchange
  • Most common method of exchange.
  • The quickest way of securing an exchange of contract.
  • Contract in effect as soon as solicitors agree that exchange has taken place.
  • After the telephone call, a physical exchange of documents occurs through the post.
  • HOWEVER if one party decides to withdraw, it’s all too easy for them to deny the contents of the phone call. Without which no contract can exist.
  • To avoid any problems must agree prior to exchange to adopt The Law Society formulae. And an accurate attending note recording the telephone conversation must be made as soon as possible:
    • Formula A: Used where one solicitor already holds both parts of the contract before exchange.
    • Formula B: this is used where at time of exchange each party’s solicitor is still in possession of his own clients signed contract.
    • Formula C: designed to be used in a chain transaction.

Personal exchange
  • Rarely used.
  • The solicitor for each party meets usually at the sellers office to exchange.
  • Contract exists from the moment of exchange.
  • Although not practical as solicitor office may be physically at great distance from each other.
  • Has benefit of seeing the others contract before exchange and can therefore be checked to make sure they’re identical.

Postal exchange
  • Exchange takes place once seller solicitor receives signed contract and deposit. After which he sense the clients signed contract.
  • Exchange deemed to have taken affect once seller posts his clients signed contract (Adams v Lindsell (1818)).
  • However a postal exchange is not recommended where a chain of transactions take place. Due to the possibility of contract may get lost in the mail.

Document exchange (DX)
  • Most solicitors belong to a document exchange (private postal system).
  • Postal rules do NOT apply to DX. And unless contract states otherwise, the contract comes into existence when the seller’s part of the contract is received by the buyer.
  • The contract is made when the last copy of the contract is deposited at the document exchange.

Fax exchange
  • Standard Conditions does not permit fax to be used as a valid method of service of a document.
  • An exchange by fax is not a valid exchange of contracts under s2 LPA (Misc Provisions) Act 1989.

Email
  • At the moment contracts for sale of land must be in writing so cannot be entered into electronically via email or via the internet.
  • However government proposals for electronic conveyancing would allow contracts to be made electronically. Under which there would be only one copy of the contract which would be stored and ‘signed’ electronically.