Editorial Committee of the Cambridge Law Journal

Side Letters, Collateral Contracts and the Law of Property (Miscellaneous Provisions) Act 1989
Author(s): Charles Harpum
Source: The Cambridge Law Journal, Vol. 50, No. 3 (Nov., 1991), pp. 399-401
Published by: Cambridge University Press on behalf of Editorial Committee of the Cambridge Law Journal
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C.L.J.

Case and Comment

399

and marginal: to transpose the slogan to cases involving health

the very central concern
of tort law, is certainly
not
and
not
be
may
necessary,
right.
It may be said that there is no longer any need for the common
law to intervene now that the duty to take care not to cause personal

recent

and safety,

injury or death is reinforced

by the 1977 Act in that it invalidates
terms which purport to restrict that duty. But here the doctor was
as to be endangering
the patients as well as
allegedly so overworked
himself. The common law must surely have something
to say on the
whether A can insist on B's performing
his promise when
question
to do so would

threaten injury to C. Kores v. Kolok [1959] Ch. 108

(on "public policy") could be invoked.
But the solution may lie elsewhere.
The employer's
duty is not
to avoid all foreseeable
harm to the employee.
It is a duty not to
him needlessly,
in view of all the circumstances.
Those
endanger

circumstances

include
what the employee
to do.
has undertaken
Were it not so, we would never get the asbestos out of old buildings,
or oil from under the sea. It has been held reasonable,
in the interest
of helping third parties, to expose an employee
to quite foreseeable
harm (Watt v. Herts. CC
W.L.R.
1
835). But that does not
[1954]
mean that the law permits people to bind themselves
to work night
and day until they drop, any more than the law allows a creditor to
bind its debtor hand and foot (Horwood
[1917] 1 K.B. 305). It is
to
what
the
Court
of Appeal held on this
surely arguable,
contrary
that
the
law
common
on
should,
point,
grounds of policy, uphold
the doctor's
to
health
right
against
exploitation
by the health
authority.
Tony

side

letters,

collateral
(miscellaneous

Weir.

and the law of property

act 1989
provisions)

contracts

Record v. Bell [1991] 1 W.L.R.

853 (Judge Paul Baker Q.C.) is the
second decision on the Law of Property (Miscellaneous
Provisions)
Act 1989, s. 2. That section, which replaces the Law of Property Act
more stringent
for
1925, s. 40, introduces
formality
requirements
for "the sale or other disposition
contracts
of an interest in land".
Such contracts
can now "only be made in writing", where before
in writing or proved
they could be made orally and merely evidenced
must
"all the terms
by acts of part performance.
They
incorporate
which the parties have expressly agreed in one document
or, where
contracts are exchanged,
in each". Previously,
memoranthe
although
dum of the agreement
was supposed
to contain all the terms, this

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The CambridgeLaw Journal

[1991]

requirementcould sometimesbe sidesteppedby waiverof the omitted

term or a submissionto it. Furthermore,the contractmust now be
signed by both parties (though on exchange of contractsit is enough
If each signs his part). In the past, it sufficed that the memorandum
was signedby the partyagainstwhomthe contractwas to be enforced.
Section 2 was enacted in response to recommendationsfrom the Law
Commission:(1987) Law Com. 164. Unfortunately that reportfailed
to consider many obvious situationswhich do not fit the new section
comfortably:e.g., it is unclearwhethera contractfor the sale of land
can now be created by an exchange of letters, or whethersection 2
applies to the creation and exercise of rights of pre-emption.One
situation which the Commission did consider was that of collateral
contracts:Law Com. 164 p. 20. It is common practicefor partiesto
refuse to enter into a contract for the sale of land or to execute a
new lease without some collateral undertakingcontained in a side
letter e.g. a tenant may agree to take a lease only if the lessor
undertakesnot to enforce certain of the covenants againsthim. Such
side letters have long been thought to be effective as collateral
contracts. At one time, collateral contracts were frowned upon
either (i) because they provided a means of obtainingdamagesfor a
non-fraudulentmisrepresentation(Heilbut,Symons& Co. v. Bllskleton [1913]A.C. 30) a considerationmade irrelevantby the Misrepresentation Act 1967, s. 2; or (ii) because they offended against the
parol evidence rule (Hendersonv. Arthur [190711 K.B. 10), a rule
now largely ignored: Cit & WestminsterProperties(1934) Ltd. v.
Mudd [1959l Ch. 129. If A contractsto buy land from B, on the basis
of some assuranceby B contained in a side letter, the issue which
the court has to resolve is whether there is in substance just one
contractzor whether there are two one genuinely collateralto the
other. If the court finds as a fact that there is a separate collateral
contract, then the existence of that agreementcannot invalidatethe
main contract of sale. Its terms are necessarily quite separate and
distinctfromthat maincontract.It is difficultto see whythe enactment
of section 2 should have changed the law at all in this regard,granted
that under the Law of PropertyAct 1925 s. 40, a memorandumhad
in generalto contain all the terms agreed. Such collateralagreements
were well-recognised under the old law: Jameson v. Kinmell Bay
Land Co. Ltd. (1931) 47 T.L.R. 593. The Law Commissionexpected
the practiceto continue?rightlyas it now appears.
In Record v. Bell the plaintiff had contractedto sell a property
in Westminsterto the defendant. The invasion of Kuwaitseriously
affected the defendant's financial position, and he tried to renege
from the contract. Under its terms, the defendant had agreedto buy
subject to the covenantsand conditionsreferredto on the registerof

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C.L.Je

Caseand Comment

401

title. However, the plaintiff was not in a position to produceup-todate office copies of the register. As there was some urgencyover
the transaction the parties agreed to proceed to exchange on the
strengthof an undertakinggiven by the plaintiff'ssolicitors,that the
office copies would be produced, that they would reveal the plaintiff
as registeredproprietor,and that there were no adverseentriessave
for mortgages which would be discharged on completion. Tl2at
undertakingwas embodied in a side letter and it was in due course
honoured. The defendant's principal argumentwas both technical
and unmeritorious.The side letter had not been expresslyincorporated into the written contract for the sale of land. That contractwas
therefore invalid because it did not contain all the terms agreed
between the parties as section 2 required.Judge Baker rejectedthat
contention. The plaintiffs solicitor had given a warrantyas to the
state of the vendor's title to induce the defendantto exchange.That
offer had been accepted by the exchangeof contracts.FollowingDe
Lassalle v. GuiZdford[1901] 2 K.B. 21S, he held that the essential
elements for the existence of a collateral contract were therefore
unequivocallyestablished. That contractwas not itself a contractfor
the sale of land and accordinglydid not have to comply with section
2.
lshe result is very welcome. Side letters are an everydayfact of
life in dealings with land, and it would be unfortunate lf, as
Judge Baker observed, "commontransactionsof this natureshould
neverthelesscause the contract to be avoided". The more stringent
requirementsof section 2 may, as both the Law Commissionand
Judge Ba}er suggested, "lead to a greater use of the concept of
collateral warranties than has hitherto been necessary" (though
parties can always ensure that this will not happen by use of
appropriate special conditions: McGrath v. Shah, The Times, 22
October 1987). This does not underminethe policy of the section,
providedthat the termsof any collateralagreementare unambiguous.
Takenwith the earlierdecision in Spirov. GlencrownPropertiesLtd.
[1991] 2 W.L.R. 931, noted at p. 236 ante, Record v. Bell suggests
that the judiciaryintend to make section 2 workSand that they wilJ
be unsympatheticto unmeritorioustechnicaldefences.
HARPUM.
CHARLES
SrYLE
COMMANDO
FORFEITURE
THE landlord of commercial property whose right of re-entry has

been activatedhas a choice. He can issue proceedings,claimingthat

he is now forfeitingthe lease, and seek a possession order from the

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