Storer v Manchester City Council [1974] 3 All ER 824

Mr Storer, a council tenant, sought specific performance after Manchester City Council refused to complete the sale of his council house following a change in political control. The Court of Appeal held a binding contract existed despite no formal exchange of contracts.

Facts

In 1970, Manchester City Council, then under Conservative control, adopted a policy of selling council houses to sitting tenants on favourable terms. The town clerk was instructed to devise a simple form of agreement to enable sales to take effect at the earliest possible date, dispensing with legal formalities.

The plaintiff, Mr Storer, was a tenant of a council house at 167 Moorcroft Road, Wythenshawe. He applied to purchase the property with a council mortgage. On 9 March 1971, the town clerk wrote to Mr Storer stating: ‘I understand you wish to purchase your Council house and enclose the Agreement for Sale. If you will sign the Agreement and return it to me I will send you the Agreement signed on behalf of the Corporation in exchange.’ Enclosed was a completed ‘Agreement for Sale’ form with the purchaser’s name, property address, price, mortgage amount and monthly repayments filled in. Clause 7, relating to the date when the tenancy ceased and mortgage repayments commenced, was left blank.

Mr Storer signed and returned the agreement on 20 March 1971. Before the town clerk signed the council’s part and returned it, the May 1971 local elections brought Labour control, and the new administration resolved to discontinue the sale scheme. The council wrote to Mr Storer stating that, as contracts had not been formally exchanged, it would not proceed with the sale.

Issues

The central issue was whether a binding contract for the sale of the council house had been concluded between the parties despite the absence of a formal exchange of contracts and without the town clerk having signed the agreement on behalf of the council. A secondary issue was whether the blank space for the date of cessation of tenancy prevented the existence of a concluded contract, and whether there was a sufficient note or memorandum to satisfy section 40 of the Law of Property Act 1925.

Arguments

For the Council

Counsel for the council submitted that contracts had not been formally exchanged and therefore no binding contract existed. It was contended that the town clerk had not intended to be bound by the letter of 9 March 1971, intending the corporation to be bound only on formal exchange. It was further argued that the omission of the date in clause 7 was a material omission preventing the formation of a contract, and that the town clerk had not signed the agreement itself.

For the Plaintiff

The plaintiff argued that the letter of 9 March 1971, together with the enclosed agreement, constituted an offer which he accepted by signing and returning the agreement on 20 March 1971. Exchange of contracts was not necessary to form a binding contract in these circumstances, particularly given the council’s express intention to dispense with legal formalities.

Judgment

The Court of Appeal (Lord Denning MR, Stephenson LJ and Lawton LJ) unanimously dismissed the council’s appeal and upheld the order for specific performance.

Lord Denning MR held that where there is no arrangement ‘subject to contract’, the only question is whether a contract has been concluded. The council had put forward a simple form of agreement with the very object of dispensing with legal formalities, and one of the formalities, exchange of contracts, was unnecessary. The offer was contained in the letter of 9 March 1971, and acceptance occurred when the plaintiff signed and returned the agreement on 20 March 1971. The contract was concluded on Mr Storer’s acceptance and was not dependent on subsequent exchange.

On the blank space in clause 7, Lord Denning MR held it did not prevent a concluded contract, citing Russell LJ in Smith v Mansi, where the insertion of a date was described as merely ‘an administrative tidying up’. Filling in the date was a matter for administrative convenience, to be completed by the town clerk with a suitable changeover date.

On the absence of the town clerk’s signature on the agreement itself, Lord Denning MR held that the town clerk’s signature on the letter of 9 March 1971 was sufficient as a note or memorandum to satisfy section 40 of the Law of Property Act 1925.

On intention, Lord Denning MR held that in contracts one does not look into actual subjective intent; one looks at outward expression. A man cannot escape a contract by saying ‘I did not intend to contract’ if by his words he has done so.

Stephenson LJ agreed, emphasising that Eccles v Bryant did not lay down any rule of law, and that the town clerk’s instructions required him to devise ‘a simple form of agreement which could be entered into to enable the sale to take effect at the earliest possible date and without waiting for the completion of the full legal formalities.’ The agreement for sale plainly expressed the defendants’ intention to become bound when the plaintiff signed his part and returned it.

Lawton LJ agreed, observing that the language of the 9 March 1971 letter was inconsistent with the council’s argument that there should be no contract until exchange. The letter referred to ‘the Agreement for Sale’, not a draft, and used the word ‘will’ in stating that the agreement signed on behalf of the corporation would be sent in exchange. The subsequent conduct, particularly the housing manager’s memorandum of 12 March 1971 recommending completion dates, confirmed that the council treated the matter as contractually concluded once the plaintiff signed. The omission of the date was not material; the agreement became an open contract on signing.

Implications

The decision clarifies that the formal exchange of contracts is not a universal legal requirement for the formation of a binding contract for the sale of land. Where the parties, by their correspondence and the form of documents used, demonstrate an intention that a contract shall arise on signature and return of the agreement, a binding contract may be concluded without exchange. This is particularly the case where the transaction is deliberately structured to dispense with traditional conveyancing formalities, as in the council house sale scheme under consideration.

The case distinguishes Eccles v Bryant, which concerned the ordinary rule that arrangements ‘subject to contract’ are not binding until exchange, and applies the approach in Smith v Mansi. It confirms that minor administrative matters left to be completed, such as the insertion of a date, do not prevent a contract from being concluded where the essential terms are agreed.

The judgment reaffirms the objective test of contractual intention: what matters is outward expression, not subjective state of mind. It also confirms that a letter signed by an authorised officer, when read together with the accompanying agreement, can constitute a sufficient note or memorandum for the purposes of section 40 of the Law of Property Act 1925.

The decision was significant for the numerous council tenants of Manchester and comparable authorities whose sales had been interrupted by the change in political control. It illustrates the limits of a local authority’s ability to withdraw from transactions where the essentials of agreement have been reached, even though formal documentation remains outstanding. However, the decision is closely tied to the particular documents and the council’s stated intention to adopt a simplified procedure; it does not displace the general position that contracts for sale of land are typically concluded only on exchange where parties have negotiated on a ‘subject to contract’ basis.

Verdict: Appeal dismissed. The Court of Appeal upheld the order for specific performance in favour of the plaintiff, holding that a binding contract for the sale of the council house had been concluded by offer and acceptance on 20 March 1971, notwithstanding the absence of a formal exchange of contracts. Leave to appeal to the House of Lords was refused.

Source: Storer v Manchester City Council [1974] 3 All ER 824