‘Subject to contract’ does not apply where it is ‘meaningless in the context’

In Michael Richards Properties Ltd v Corporation of Wardens of St Saviour’s Parish, Southwark ([1975] 3 All ER 416) S offered property for sale by tender. The conditions of sale required interested parties to submit a tender form. Once S had chosen a bidder, the contract would be formed and the winner would be informed. P was the successful bidder. By mistake, the letter notifying it of this fact was marked ‘subject to contract’. P sent a cheque for the 10% deposit to S but later sought to resile and demanded the return of the deposit. S served notice to complete which was not complied with. S treated this as a repudiatory breach and re-sold for a lower price. P claimed the return of the deposit on the basis that there was no contract and S counterclaimed for damages.

S could have pleaded that the contract had already been formed by the time ‘subject to contract’ was introduced but failed to do so. Instead, it successfully pleaded that the words ‘subject to contract’ had no effect because they were ‘meaningless in the context’ (Nicolene Ltd v Simmonds). Goff J agreed that this was so:

‘This was a sale by tender. Nothing remained to be negotiated, there was no need or scope for any further formal contract, and it is difficult to see how it would be drawn. Nobody ever thought there was. The vendors did not submit a draft contract, nor were they asked to do so, and the matter proceeded with the steps necessary not to negotiate or finalise a contract, or even put it into further form or shape, but with the steps required for completion. In the context of a tender document which sets out all the terms of the contract, and which is required to be annexed to the tender offer, it seems to me that the words ‘subject to contract’ in the acceptance are meaningless, and that I ought to apply the principle of Nicolene Ltd v Simmonds.’ (at 424)

Goff J stressed that this was not intended to impede the normal operation of ‘subject to contract’ and that the decision rested on the unusual facts of the case.