Sale of Land: Is it necessary to

sign a contract?
By Ho Ai Ting
25 February 2016

AGENDA
Introduction
Elements of Contract
Common Misconception
Incomplete Agreements Are They Binding?
Reasonable Man Test
Conclusion

INTRODUCTION
Many of us frequently enter into transactions involving the sale of property and land.
In our flurry of negotiations with the vendor, do we really know when the contract
becomes concluded?

INTRODUCTION

Signing

True or false?

Conclusion

INTRODUCTION

Answer the question of

when exactly a contract
is formed in
transactions of land
and property

Tackle the common

misconception that
such transactions
only take effect
upon signing of a
contract

Highlight ways to
safeguard your
interests in such
transactions

ELEMENTS OF CONTRACT

Offer

Acceptance

Contract

Intention to
create legal
relations

Consideration

COMMON MISCONCEPTION
Transactions only take effect upon signing of a contract true or false?
Courts have upheld agreements in the following forms:
Letters
JR Lincks Educational Consultants Sdn Bhd v Goh & Sons Enterprise
Sdn Bhd [2008] 3 CLJ 815
Perry v Suffields, Limited [1916] 2 Ch 187
Cipta Cermat Sdn Bhd v Perbadanan Kemajuan Negeri Kedah [2007]
1 CLJ 498, CA
Telephone conversations
Elias v George Sahely & Co (Barbados) Ltd [1982] 3 All ER 801

COMMON MISCONCEPTION
Forms
Storer v Manchester City Council [1974] 1 WLR 1403
Provisional Agreement
Branca v Cobarro [1947] KB 854
the agreement entered into by the parties contained a clause as follows:
'This is a provisional agreement until a fully legalized agreement, drawn
up by a solicitor and embodying all the conditions herewith stated, is
signed.' It was held by the Court of Appeal that a binding agreement had
come into effect.

INCOMPLETE AGREEMENTS ARE THEY BINDING?

Different forms of incomplete agreement
Agreement in principle
Stipulation for execution of formal documents
Agreement subject to contract
Booking pro forma
Part performance before agreement is signed
Criteria/ machinery laid out in agreement

AGREEMENT IN PRINCIPLE
Parties may reach agreement on broad matters in principle
but leave important points unsettled.
Even an agreement for sale of land dealing only with the
barest essentials may be regarded as complete if that was
the clear intention of the parties.
Perry v Suffields [1916] 2 Ch 187
Elias v George Sahely & Co. (Barbados) Ltd [1982] 3 All
ER 801
Storer v Manchester CC [1974] 1 WLR 1403

AGREEMENT IN PRINCIPLE

Perry v Suffields [1916] 2 Ch 187

Vendor filed action for specific performance of contract contained in two letters of February 23 and
March 3 for sale and purchase of certain freehold licensed premises.

February 23 letter secretary of company made an offer of 7000 to the plaintiff

March 3 letter plaintiff accepted the offer of 7000.

Facts

A draft contract later on sent by plaintiff contained condition as to commencement of title, the
payment of a deposit, and the time for completion, which was to be postponed until after the
completion of the other contract with district council.
As a result, defendant ended negotiations as he could not entertain the purchase of the property
on the conditions mentioned.

Judgment

English Court of Appeal held that the parties rights were for all purposes
sufficiently settled by the two letters of offer and acceptance i.e. there
was a complete and definite contract which was made up by two letters
dated February 23 and March 3.

AGREEMENT IN PRINCIPLE

Elias v George Sahely & Co. (Barbados) Ltd [1982] 3 All ER 801

Facts

A vendor agreed, in a telephone conversation, to sell property to a purchaser at an agreed price.

The purchasers lawyer wrote to the vendors lawyer confirming the contract, and enclosed a deposit
stating that he was to hold it pending completion of the contract for sale.
A receipt was sent but the letter was not acknowledged.
The vendor failed to complete the contract and the purchaser unsuccessfully sought an order of specific
performance. The purchaser appealed.

Whether a contract of sale existed; and, if so

Whether it was evidenced by a note or memorandum signed on the vendors behalf.

Issues

Judgment

An oral contract for the sale of land which was neither in writing nor partly performed was merely unenforceable,
not void.
In the present case there was a contract of sale, as an oral contract had been concluded during the telephone
conversation.
The letter from the purchasers lawyer could not be interpreted to mean that there was no binding contract until a
formal contract was signed.

AGREEMENT IN PRINCIPLE

However, if the alleged documents do not contain the terms essential for
such an agreement to be enforced, court will hold it unenforceable.
May and Butcher, Limited v The King [1934] 2 KB 17
Held: Since the price for the goods concerned not having been agreed
on between the parties, there was no binding or concluded contract,
and there being a stipulation in the agreement that the price should be
agreed, it could not be implied that the price was to be a reasonable
price.

AGREEMENT IN PRINCIPLE
Dhanani v Crasnianski [2011] 2 All ER (Comm) 799

Held: It was established law that whether there was a binding contract between the parties, and upon what terms, depended
upon what they had agreed. It depended not upon their subjective state of mind, but upon a consideration of what was
communicated between them by words or conduct, and whether that led objectively to a conclusion that they
intended to create legal relations and had agreed upon all the terms which they regarded or the law required as
essential for the formation of legally binding relations. Even if certain terms of economic or other significance to the
parties had not been finalised, an objective appraisal of their words and conduct might lead to the conclusion that they had
not intended agreement of such terms to be a precondition to a concluded and legally binding agreement.

Further the court should not be astute to find defects in what the parties had agreed, but should seek to give effect to
what they had agreed. It was true that the courts were reluctant to conclude that what the parties intended to be a
contractual agreement was too uncertain to be of contractual effect, especially where a party had acted upon it. However, it
did not follow that the fact that work had been performed that the parties had to have entered into a binding contract. Rather,
that was a very relevant factor pointing in that direction. Whether the parties intended to enter a contract, that it to create
legal relations, depended not upon a detail textual analysis, but upon how a reasonable man versed in business would have
understood the exchanges between the parties. Finally, the law would not recognise an agreement to agree as giving rise to
enforceable obligations.

On its proper construction, the reasonable businessman would have understood the signed letter and term sheet to be
legally binding. The term sheet, however, left so much to be agreed that it was in reality an agreement to agree with no
indication of any objective criteria by reference to which agreement was to be reached on the matters not then agreed.
Accordingly, the agreement contained in the letter and term sheet was unenforceable because it did not contain the
terms which were essential for such an agreement to be enforced.

STIPULATION FOR EXECUTION OF FORMAL DOCUMENTS

Effect of a stipulation that an agreement is to be embodied in a formal written

document depends on its purpose.
Von Hatzfeldt-Wildenburg v Alexander [1912] 1 Ch 284
It appears to be well settled by the authorities that if the documents or
letters relied as constituting a contract contemplates the execution of a
further contract between the parties it is a question of construction whether
the execution of the further contract is a condition or term of the bargain or
whether it is a mere expression of the desire of the parties as to the manner
in which the transaction already agreed to will in fact go through. In the
former case, there is no enforceable contract because the condition is
unfulfilled or because the law does not recognise a contract to enter
into a contract. In the latter case, there is a binding contract and
reference to the more formal document may be ignored.

AGREEMENT SUBJECT TO CONTRACT

Agreements for the sale of land by private treaty are usually made subject
to contract.

Well settled when an arrangement is made subject to contract or

subject to the preparation and approval of a formal contract and similar
expressions, it will generally be construed to mean that the parties are still
in a state of negotiation and do not intend to be bound unless and until a
formal contract is exchanged.
Ayer Hitam Tin Dredging Malaysia Bhd v YC Chin Enterprise Sdn Bhd
[1994] 2 MLJ 754, SC
Kam Mah Theatre Sdn Bhd v Tan Lay Soon [1994] 1 MLJ 108, SC
Winn v Bull (1877) 7 Ch D 29
Eccles v Bryant and Pollock [1948] Ch 93, CA
Chillingworth v Esche [1924] 1 Ch 97, CA

AGREEMENT SUBJECT TO CONTRACT

Ayer Hitam Tin Dredging Malaysia Bhd v YC Chin Enterprise
Sdn Bhd [1994] 2 MLJ 754, SC
Merely because the parties contemplate the preparation of
a formal contract, that would not prevent a binding contract
from coming into existence before the formal contract is
signed. However, when an arrangement is made subject
to contract or subject to the preparation and approval of
a formal contract, it will generally be construed to mean
that the parties are still negotiating and do not intend
to be bound until a formal contract is exchanged.

AGREEMENT SUBJECT TO CONTRACT

Whether the contract was a concluded contract or otherwise
is a question of fact
Charles Grenier Sdn Bhd v Lau Wing Hong [1996] 3 MLJ
327, FC
JR Lincks Educational Consultants Sdn Bhd v Goh & Sons
Enterprise Sdn Bhd [2008] 3 CLJ 815, CA
Lim Keng Siong & Anor v Yeo Ah Tee [1983] CLJ (Rep)
231, FC

AGREEMENT SUBJECT TO CONTRACT

Charles Grenier Sdn Bhd v Lau Wing Hong [1996] 3 MLJ 327, FC

Where parties who have been in negotiation to reach agreement upon terms of a
contractual nature and also agree that the matter of their negotiation shall be dealt with
by a formal contract, the case may belong to any of three classes

a) Where the parties have reach finality in arranging all the terms of their bargain and
intend to be immediately bound to the performance of those terms, but at the
same time propose to have the terms restated in a form which will be fuller or more
precise but not different in effect.
b) Where the parties have completely agreed upon all the terms of their bargain and
intend no departure from or addition to that which their agreed terms express or
implied, but nevertheless have made performance of one or more of the terms
conditional upon the execution of a formal document.
c) Where the intention of the parties is not to make a concluded bargain at all, unless
and until they execute a formal contract.

AGREEMENT SUBJECT TO CONTRACT

Charles Grenier Sdn Bhd v Lau Wing Hong [1996] 3 MLJ 327, FC (Cont)
In the first two cases there is a binding contract:
in the first case a contract binding the parties at once to perform
the agreed terms whether the contemplated formal document
comes into existence or not, and to join (if they have so agreed) in
settling and executing the formal document.
in the second case a contract binding the parties to join in
bringing the formal contract into existence and then to carry it into
execution.

AGREEMENT SUBJECT TO CONTRACT

Charles Grenier Sdn Bhd v Lau Wing Hong [1996] 3 MLJ 327, FC (Cont)
The court examined the two letters that passed between the parties,
and was unable to find that the parties intended that there should be
no concluded contract until a formal sale and purchase agreement had
been executed by them.
On the contrary, the court found their objective intention to be
travelling in quite the opposite direction. They had identified the parties
to the transaction, the property, the price and the terms they
considered essential with sufficient clarity.

AGREEMENT SUBJECT TO CONTRACT

JR Lincks Educational Consultants Sdn Bhd [2008] 3 CLJ 815, CA
..the plaintiff became tenant of the premises pursuant to the tenancy
agreement by letter dated 22 July 1993, immediately upon the
plaintiff being given possession and the keys to the premises on 24
January 1994, notwithstanding the execution of a formal written
tenancy agreement subsequently, purporting to create a tenancy
effective only from 1 March 1994... The fact that the defendant
waived the rental for the period 1 September 1993 till 1 April 1994 is
immaterial, and does not derail the landlord/tenant relationship
already in place.. The subsequent formal written agreement was
nothing more than a continuation of the tenancy created by the
letter of 22 July 1993.

BOOKING PRO FORMA

Courts are willing to recognise the booking pro forma as a contract provided that
the essential terms i.e. parties, property and price have been agreed upon by the
parties.
Daiman Development Sdn Bhd v Mathew Lui Chin Teck and Another Appeal
[1978] 2 MLJ 239, FC
Karuppiah v Petaling Garden Co Sdn Bhd [1972] 1 MLJ 173, FC
Yeo Long Seng v Lucky Park (Pte) Limited [1971] 1 MLJ 20
Howe v Smith (1884) 27 Ch D 89, CA
Eckhardt Marine Gmbh v Sheriff, High Court of Malaya, Seremban & Ors
[2001] 4 MLJ 49, CA
Storer v Manchester City Council [1974] 1 WLR 1403

BOOKING PRO FORMA

Daiman Development Sdn Bhd v Mathew Lui Chin Teck and Another Appeal
[1978] 2 MLJ 239, FC
-

Respondent paid a booking fee of $700 and signed a booking pro forma.
According to the booking pro forma the parties agreed the purchase price of the
house at $26,000. Respondent also agreed that on receiving notice by the
respondents he would sign the agreement for sale.

Subsequently, the appellants informed the respondent that the price of the house
was increased to $35,100 because of amendments to the building plans and
increase of material and construction costs. The appellants informed the
respondent that unless he agreed to pay the deposit based on the increased
price, they would cancel the booking and refund the booking fee.

Court held that ..the booking pro forma was a firm contract. It identified the
parties, it specified the property to be bought and its price. Appellants had no
right to change the price stated in the booking pro forma in such circumstances.

BOOKING PRO FORMA

However, courts will not hesitate to release the parties from their obligation when
the document is essentially still subject to contract, when the agreement is
deemed an inchoate contract, when the terms are vague or if either party has not
complied with the terms of the document.

Kam Mah Theatre Sdn Bhd v Tan Lay Soon [1994] 1 MLJ 108, SC
Skyline Trading Co v Tiow Yoke Lan [1969] 2 MLJ 212, FC
Hui Jia Hao v Perdana Park City Sdn Bhd [2012] 8 MLJ 385
Golden Century Development Sdn Bhd & Anor v Ganhoe & Anor [1983] 1 MLJ
86, FC
Gibson v Manchester City Council [1979] 1 WLR 294, HL

BOOKING PRO FORMA

Kam Mah Theatre Sdn Bhd v Tan Lay Soon [1994] 1 MLJ 108, SC

Respondent (purchaser) corresponded with appellant (vendor) by a letter for the purchase of lands.
The terms of the document contained a proviso i.e. that the sale and purchase agreement shall
incorporate all the terms and conditions herein and other usual terms and conditions and
shall be signed on or before 18 March 1989, otherwise the deposit was to be refunded to the
respondent. Sale and purchase agreement was prepared and signed by respondent only with two
new conditions which appellant did not agree and therefore refunded respondents deposit.

SC held that there was no contract at all, because the document was dependent on the signing of a
formal contract to be further negotiated and approved by both parties. The proviso in the said
document was very similar to the phrase subject to contract. The words usual terms and
conditions failed to reveal certainty and were too ambiguous.

It is settled that the formula of subject to contract gives rise to a strong presumption of the necessity
of a further formal contract and it requires cogent evidence to displace this strong presumption. On
the facts of this case, there was cogent evidence to show that the negotiations were still ongoing
between the parties, including: (i) the provision of the return of the deposit on the failure of the parties
signing the contract by 18 March 1989; (ii) the agreement which was signed by the plaintiff only,
containing two more conditions; (iii) there could have been a further amended draft of the ultimate
agreement to take account of withdrawal of the compulsory acquisition over part of the land; and (iv)
the correspondence after the date of the said document.

BOOKING PRO FORMA

Skyline Trading Co v Tiow Yoke Lan [1969] 2 MLJ 212, FC
Respondent paid booking fee of $2000 for a flat on the understanding that she should
sign a contract of purchase within 2 weeks of receipt of notice from the vendors.
Upon informing herself of the terms of the proposed agreement and form of lease she
decided that she was not prepared to buy the flat on the terms of the proposed
agreement, which offered a lease instead of a sale of the flat, and she asked for the
return of the booking fee.
FC held that the contract of purchase was,, inchoate, of the type where a purchaser
of land agrees to purchase subject to a proper contract to be prepared by the vendors
solicitor. When the respondent paid the booking fee, neither parties were aware of the
precise terms of the contract which did not yet exist even in draft. Besides the price, the
rate of installments and interest both of which could be increased and varied at the
discretion of the vendor none of the terms and conditions were made known to and
accepted by the respondent. The condition expressed in the reservation form thus left
the terms of the contemplated contract so nebulous and vague that no enforceable
contract between the parties could have arisen..

BOOKING PRO FORMA

When does the contractual relationship begin?

Contractual relationship begins when all the basic elements of contract
have been fulfilled i.e. offer, acceptance, intention to create legal
relations and consideration.
From the cases discussed, there must also be certainty in the subjectmatter such as the parties, the property transacted and the price.

Ambiguity in any of the essential terms may lead to the courts

conclusion that the booking pro forma is still subject to contract.

PART PERFORMANCE BEFORE AGREEMENT IS SIGNED

Parties may begin to act on terms of agreement before a formal contract is

signed.

That contract may have retrospective effect so as to apply to work done or

goods supplied before it was actually signed.

Steadman v Steadman [1974] 2 All ER 977, HL

Trollope & Colls Ltd v Atomic Power Construction Ltd [1963] 1 WLR
333
Cipta Cermat Sdn Bhd v Perbadanan Kemajuan Negeri Kedah [2007]
1 CLJ 498, CA

PART PERFORMANCE BEFORE AGREEMENT IS SIGNED

Cipta Cermat Sdn Bhd v Perbadanan Kemajuan Negeri Kedah [2007] 1
CLJ 498, CA
I

think there was a concluded contract despite the want of a duly

executed formal agreement You have an offer by the defendant.
You have an acceptance by the plaintiff. And you have consideration.
You also have certainty of parties, certainty of price and certainty of
the property. And you have the unequivocal acts of part
performance by the plaintiff which are referable to an existing
contract between the parties.

CRITERIA/MACHINERY LAID DOWN IN AGREEMENT

Court has less difficulty in upholding agreements which lay down criteria
for determining matters which are left open.
Hillas & Co Ltd v Arcos, Ltd [1932] All ER Rep 494, HL
Brown v Gould [1972] Ch 53
Sudbrook Trading Estate Ltd v Eggleton [1983] 1 AC 444, HL

CRITERIA/MACHINERY LAID DOWN IN AGREEMENT

Hillas & Co Ltd v Arcos, Ltd [1932] All ER Rep 494, HL
Option to renew for such new lease to be for a further term of 21 years at a rent to
be fixed having regard to the market value of the premises at the time of exercising
this option taking into account to the advantage of the tenant any increased value
of such premises attributable to structural improvements made by the tenant..
if such a formula were given to a valuer employed by the landlords and a valuer
employed by the tenant, the figures produced by the two valuers would not be
identical yet in all probability also, if those valuers gave evidence before the
court and were duly cross-examined, the court could reach a conclusion..
Although the rent is to be fixed having regard to such matters, nevertheless the
fixing of the rent is to be basically a discretionary matter, with the person fixing the
rent obliged merely to have regard to certain matters, and then, provided he does
not altogether forget these matters or depart from the rational, being fancy-free in
the rent that he fixes.

THE REASONABLE MAN TEST

Dhanani v Crasnianski [2011] EWHC 926 (Comm)
The general principles to be applied by the courts when determining whether the parties have
made an enforceable agreement have recently been summarised by the Supreme Court in RTS
Ltd v Molkerei Alois Muller GmbH [2010] UKSC 14, [2010] 3 All ER 1, [2010] 1 WLR 753. At para
45 Lord Clarke said:

Whether there is a binding contract between the parties and, if so, upon what terms depends
upon what they have agreed. It depends, not upon their subjective state of mind, but upon a
consideration of what was communicated between them by words or conduct, and whether
that leads objectively to a conclusion that they intended to create legal relations and had
agreed upon all the terms which they regarded or the law requires as essential for the
formation of legally binding relations. Even if certain terms of economic or other significance
to the parties have not been finalised, an objective appraisal of their words and conduct
may lead to the conclusion that they did not intend agreement of such terms to be a
precondition to a concluded and legally binding agreement The yardstick was the
reasonable expectations of sensible businessmen.

CONCLUSION

Basic elements of contract would require there to be an offer from one

party, an acceptance from the other party, intention to create legal
relations, and consideration.

Additionally for transactions involving land and property, we should also

pay attention to ensure certainty of parties, property and price as well as
any other terms essential to the transaction.

Whether the contract was a concluded contract or otherwise is a question

of fact

In determining whether the parties have made a binding and enforceable

contract, the court will look into the intention of the parties and adopt the
reasonable man test.

CONCLUSION

To safeguard your interest:

Record all transactions properly
Be as clear and concise as possible when laying out terms to an
agreement, be it formal or otherwise
Draw up and sign a formal contract as soon as possible

Thank you