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Option agreements, securities, mutuality of contract and implied terms

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Option agreements, securities, mutuality of contract and implied terms

08 September 2017

Lady Wolffe has issued her Opinion in the case of J & H Lamont v Chattisham Limited [2017] CSOH 119. The Pursuers had granted an option over a large area of land, owned by them, which had considerable potential for development. It was (as is common) one of the conditions of the option agreement that the Pursuers were required to grant a standard security over the option subjects – the security was to secure “implementation of [the Pursuers’] obligations under this Agreement”.

No development in fact took place during the option period and the Pursuers terminated the option agreement. The option agreement provided that on the earlier of expiry of the option period or termination of the option agreement the Defender was to deliver an executed discharge of the standard security which the Pursuers had granted over the option subjects.

The Defender refused to deliver that discharge, alleging that the Pursuers were in breach of various express and implied terms of the option agreement; that those breaches had caused substantial loss to the Defender; and that it was entitled to withhold or retain performance of its own obligations (and in particular to retain the standard security over the option subjects) until its own claim for damages had been resolved.

The Pursuer sought to persuade the Court that the Defender was not entitled to exercise such common law remedies in respect that the express contractual obligation to deliver a discharge on termination of the option agreement had priority. The Pursuers also argued that the Defender’s averments in relation to the alleged implied terms were irrelevant.

Lady Wolffe found in favour of the Pursuer in respect of these issues. Her Opinion (a copy of which may be found here contains a very interesting and insightful discussion of the applicable legal principles.

David Thomson QC, of Axiom, appeared for the successful Pursuers.