Agreement ‘subject to a proper contract’

In Chillingworth v Esche ([1924] 1 Ch. 97, CA (Eng)) S agreed to sell his land to P. The parties signed a written document recording the agreed terms. This document said that the agreement was ‘subject to a proper contract to be prepared by the vendor’s solicitors’. P paid a deposit. The terms of the anticipated formal agreement were settled but P then informed S that he did not intend to proceed. He sought the return of the deposit.

The English Court of Appeal held that it was always a matter of construction whether the parties intended to be contractually bound. In this case, making the agreement ‘subject to a proper contract’ expressed an intention not to be contractually bound. There was nothing to indicate an agreement that S could retain the deposit even though the transaction had fallen through and he had to return it. The Court of Appeal spoke in terms of a conditional contract: the phrase used showed that the parties saw entering into the ‘proper contract’ as a condition precedent to the formation of the contract.

This case seems to mark the emergence of ‘subject to contract’ as a phrase with a definite legal significance:

‘To my mind the words “subject to contract” or “subject to formal contract” have by this time acquired a definite ascertained legal meaning – not quite so definite a meaning perhaps as such expressions as f.o.b. or c.i.f. in mercantile transactions, but approaching that degree of definiteness. The phrase is a perfectly familiar one in the mouths of estate agents and other persons accustomed to deal with land; and I can quite understand a solicitor saying to a client about to negotiate for the sale of his land: “Be sure that to protect yourself you introduce into any preliminary contract you may think of making the words ‘subject to contract.'” (Sargant LJ at 114).

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