The parties can agree to withdraw or one party can waive ‘subject to contract’

In Law v Jones ([1973] 2 W.L.R. 994, CA (Eng)) the terms of an initial oral agreement to sell property for GBP 6,500 were recorded in two letters written by the defendant’s (the seller’s) solicitors to the solicitors acting for the plaintiff (the buyer). This correspondence was plainly covered by the ‘subject to contract’ label attached to the first of the two letters. Then the parties agreed to a price increase. In the meeting on March 13th at which the increase was agreed, the seller told the buyer, ‘I shall not go back on my word. My word is my bond. It is yours now: carry on and make all your arrangements.’ The seller’s solicitors wrote a letter on March 17th (not marked ‘subject to contract’ it seems) confirming the price increase and asking the buyer’s solicitors to amend the price recorded in the draft contract sent to them. The seller then purported to withdraw and the buyer sought specific performance.

The English Court of Appeal upheld the decision to grant specific performance. The majority of the Court of Appeal were of the view that the buyer had waived the ‘subject to contract’ label by his clear words on March 13th. Thus, it was possible to join the March 17th letter together with the earlier letters (now shorn of their ‘subject to contract’ status) to create a sufficient memorandum for the purposes of section 40 of the Law of Property Act 1925 (in the same terms as the current section 3(1) of Hong Kong’s Conveyancing and Property Ordinance but repealed in England and Wales).

Cohen v Nessdale had already made the point that the parties can expressly or impliedly agree to end the operation of ‘subject to contract’ so the idea that it can be waived is not surprising. Here, however, the buyer was relying on correspondence that had been labelled ‘subject to contract’ when written to provide the memorandum. The correspondence recorded the terms under discussion but, far from pointing to the existence of a contract, denied that a contract existed. Law v Jones therefore seems to rest on the proposition that a memorandum need only record the relevant terms and need not point to the existence of a contract. An alternative viewpoint is that the final letter, which was not subject to contract’ referred to the earlier correspondence for convenience (to avoid repetition) but pronounced them anew in a contractually binding way.

It may have been better if the court had been invited to look at the case as being one of estoppel by representation (akin to Walton’s Stores (Interstate) Ltd v Maher). The words used on March 13th seem to be a much stronger representation than that made in Walton’s Stores. Since the case was not looked at in this light the question of detrimental reliance was not discussed.

Russell L.J. (dissenting) was very anxious to preserve the use of  ‘subject to contract’ as a way of creating a safe haven in which negotiations can be conducted without fear of inadvertently creating a binding contract (at 120 – 121). In this sense, Law v Jones should be read in the light of Tiverton Estates Ltd v Wearwell Ltd).

It is unlikely that a Hong Kong court would have found that the oral discussions gave rise to a contract since it would be an ‘open’ contract (ie with no express completion date). In Kwan Sin Man Joshua v Yaacov Ozer it was held that failure to agree on a completion date in Hong Kong was a strong indicator that there was no intention to create legal relations.

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