SMS as a written memorandum of a contract?

In Distinct Fortune Ltd v Hyndland Investment Co Ltd ([2011] 1 HKLRD 817) P agreed to buy property in Tsim Sha Tsui from D. P signed a provisional agreement and paid earnest money. D did not sign a provisional agreement but preferred to sign a formal agreement prepared by the parties’ respective solicitors. The parties’ solicitors then corresponded with each other to negotiate the terms of the formal agreement. All correspondence was ‘subject to contract’. There were two or three telephone conversations between the parties’ solicitors and between the parties’ agents in which the terms of the formal agreement were settled.  D’s representative sent P’s representative a text message to say that P would tell his solicitors to go ahead with the deal. The SMS read ‘Kim said he’ll give instruction to pig to go ahead with the deal’. Kim was a director of D and ‘pig’ was the solicitor acting for D. The next day, D’s solicitors sent out an engrossment of the formal agreement for signature by P. The engrossment was sent out under cover of a letter marked ‘subject to contract’.  P signed the formal contract and returned it to D’s solicitors with a cheque for a further deposit. D’s solicitors returned the contract and the deposit payments since D had decided against proceeding with the transaction. P sought specific performance and D countered that there was no written contract or memorandum to satisfy section 3 of the Conveyancing and Property Ordinance. P relied on the SMS message  (read together with the engrossment of the formal agreement) as the memorandum. Alternatively it argued that returning the signed formal agreement together with a cheque for the deposit amounted to part performance. D succeeded in having the action struck out on the basis that there was neither a memorandum nor part performance.

There was no memorandum. The SMS  could not simply be read together with the formal agreement to form a memorandum since the formal agreement was accompanied by a ‘subject to contract’ letter. The reference in the SMS to the intructions to be given to D’s solicitor would include the instruction to send the agreement with a ‘subject to contract’ letter. The SMS merely referred to ‘the deal’ and so there was not enough detail to forge a link with the engrossed formal agreement. Another problem was that the formal agreement was not in existence at the time of the SMS. Further, the SMS could not be a memorandum since it did not in any sense purport to be signed by D’s representative.

Nor was there part performance; the acts of submitting the signed formal agreement with a deposit were acts preparatory to a contract and not part performance of it.

The case for saying that an oral agreement had been concluded was very weak. The solicitors had been careful to label all of their letters to each other ‘subject to contract’ and to declare that their respective clients were not to be bound by anything said in the correspondence until both parties had signed a formal agreement. Properly understood, the conversations between the parties had not crossed the boundary between negotiations and a concluded contract. The court would not have struck out the action on this basis, however, since a full consideration of the facts would be necessary.

Michael Lower

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2 Responses to “SMS as a written memorandum of a contract?”

  1. thenakedlistener Says:

    Believe it or not, this case is giving me ideas for a possible blogpost (probably humorous in nature, but we’ll see). I would like to borrow/pilfer/misappropriate/whatever the case for my blogpost, if I may. You’ll be getting a creditline as source – but only if you’re brave enough and don’t mind being [indirectly] associated with a brain-damaged blogger like me!

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