Archive for February, 2014

Subject to Contract

‘Subject to contract’ – three little words that can mean so much and save so much grief in negotiations, particularly when buying or selling property, but which can lead to litigation when trying to determine whether or not a binding agreement has been reached.

The subject of much case law, the meaning of the words has again come under judicial scrutiny in the recently reported case of Mr Malcolm Newbury v Sun Microsystems [2013] EWHC 2180 (QB).  The parties in this case, which had been set down for a 8 day trial, did not use the magic words but reached a pre-trial agreement on the basis that the proposed settlement was “to be recorded in a suitably worded agreement”.

Mr Justice Lewis reviewed the law on ‘subject to contract’ but in applying it to the facts before him, concluded that in this case, viewed objectively, the correspondence between the parties gave rise to a binding legal contract.  Execution of a suitably worded agreement “was not a condition of the creation of a binding agreement but was simply inteneded to record more formally the contract that had been reached”.

In his detailed reasoning, the judge said the letter of offer of settlement was clearly set out and available for acceptance within a specified time.  If accepted, payment was to made within 14 days.  These factors are, said the judge, “a clear indiction that this letter was intended to be a binding offer capable of acceptance with certain legal consequences following from acceptance”.  The letter referred to “such agreement” being recorded: “The reference to “such agreement” is not expressed to be “subject to contract”.  Had those words been used, it would have been clear that the terms were not yet binding or agreed until a formal contract was agreed”.

So, choose your words in an offer letter with care and if you wish to hear more, why not contact Hatherleigh Training?  Vivien has, for some considerable number of years, lectured on the meaning of ‘subject to contract’ and ‘without prejudice’.