Contract
Contract
Grossman v. Hooper [2001] 27EG 135
This case concerns the issue of whether an additional term agreed by the parties but not incorporated into the contract for the transfer of property formed a separate collateral contract or should have been expressed in the main contract in accordance with s2 Law of Property (Miscellaneous Provisions)Act 1989.
The parties, Mr Hooper and Miss Grossman, had lived together for ten years but had not married. In 1986 they had purchased a property in the sole name of the appellant but with the aid of a mortgage on which the parties were jointly liable as borrowers. The respondent had also made some (unspecified)contribution to the purchase price. When the relationship broke down in 1996 the parties had to decide what to do with the property. In a document, in the form of a letter from the appellant to the respondent dated 21 December 1996 and signed in the presence of a witness on 23 December 1996 the appellant had agreed to transfer his interest in the property to Miss Grossman, the respondent.
The problem for the court was that at some time during their relationship the parties had got into arrears with the mortgage. They had obtained an unsecured loan of £10,000 from a friend of Miss Grossman to help them out of their difficulty. Two earlier drafts of the letter had contained an agreement by the parties that Miss Grossman would discharge this loan but there was no reference to this in the agreement signed by the parties on 23 December.
When Mr Hooper had second thoughts about the agreement and refused to transfer his interest in the property to her, Miss Grossman brought an action in the County Court for specific performance. Mr Hooper claimed that the agreement was unenforceable as it did not contain all of the terms agreed between the parties in accordance with s2 Law of Property (Miscellaneous Provisions)Act 1989.
In the County Court the judge said that he had to decide whether the obligation to discharge the debt was a term of the agreement for the transfer of Mr Hooper's interest in the property and should therefore have been incorporated into the document the parties signed in order to comply with s2, or whether it was some collateral arrangement. Following the reasoning of Scott LJ in Tootal Clothing Ltd v. Guinea Properties Management Ltd [1992] 2 EGLR 80 the judge held that the agreement to repay the loan was a "wholly collateral transaction" unconnected with the transaction to transfer the property. Thus it did not vitiate the contract under the terms of s2 of the Act and Miss Grossman was entitled to succeed.
Mr Hooper appealed to the Court of Appeal on the ground that the judge was wrong to hold that the agreement to repay the loan upon transfer of the property to Miss Grossman was a collateral agreement rather than a term of the principal agreement between the parties. Clearly if this were so then the requirements of s2 would not have been satisfied, rendering the agreement for the transfer of the property in the main agreement unenforceable.
In his judgement Chadwick LJ doubted the approach of the judge in the County Court, describing it as unhelpful to ask whether the arrangement between the parties with regard to the discharge of the loan was a collateral agreement. Sir Christopher Staughton LJ agreed on this point doubting the reasoning in the Tootalcase. He pointed out that if the parties were free to hive off part of their composite agreement into a separate collateral contract then they could avoid the effects of s2 of the Act altogether. He also pointed out that the reasoning in the Tootal case was inconsistent with that of Simon Brown LJ in Goddenv. Merthyr Tydfil Housing Association (1997) 74 P&CR.Thus, he stated "… if there was a term in the contractual agreement that Miss Grossman would pay off [the £10,000 loan] and if that were part and parcel of the agreement for the transfer of the property, I am by no means sure that it can be hived off … into a separate contract." In the event he held that on the facts of this case it was unnecessary to establish a collateral contract and so the point remains open to be argued in a future case. Shiemann LJ agreed.
Chadwick LJ held that the proper approach in this case was to examine the words of s2 and based upon that he concluded that the proper enquiry was: "…did the terms upon which the parties agreed that the land was to be sold include a term (or terms) that have not been incorporated in the document that they have signed?" Thus the only question was whether Miss Grossman's undertaking to pay off the £10,000 loan was a term of the transfer by Mr Hooper of his interest in the property. Chadwick LJ agreed with the trial judge's conclusion that it was not. He gave three reasons: first, there was always doubt between the parties as to whether Mr Hooper had ever had any liability for this loan. Second, the obligation to repay the loan had been deliberately left out of the letter signed by both parties even though Mr Hooper had himself drafted that document. Chadwick J therefore felt that the most obvious explanation for the omission was that Mr Hooper knew that the discharge of the loan was not a term of the bargain upon which the property was to be transferred to Miss Grossman. Third, Miss Grossman had always acknowledged her obligation to repay the loan and the common understanding was that it would be discharged from the proceeds of sale of the property that was to be transferred to her. Thus the discharge of the debt was not an issue between the parties and there was no need for it to be a term of the agreement under which Mr Hooper transferred his interest to Miss Grossman. The document they signed therefore contained all of the terms of their agreement. The appeal was dismissed.
The law is stated as it is understood to be on 7 July 2001.
Rosalind Lee
