Australia: Warning: Offer Signed Subject To Contract May Still Be Binding

Last Updated: 29 May 2009
Article by Cameron Graham

Originally Published 21st April 2009

The Court of Appeal has recently handed down a decision that, while not a new statement of law, is a re-statement of a principle that serves as a reminder to parties to an agreement for the sale of land; the signing of an offer to sell or buy property may be binding, even if it is subject to the execution of a formal contract.

What happened?

The plaintiff seller owned 20 acres of rural/residential land on the Sunshine Coast. Following negotiations between the seller and the defendant buyer over a 12-month period, in April 2008 there arose a dispute as to whether, under put and call option arrangements, the seller had made a binding agreement with respect to the sale of the land to the buyer. The court at first instance determined the dispute in the buyer's favour, declaring that a letter dated 8 April 2008 (the Letter) signed by both parties constituted a valid and binding agreement. The court ordered that the agreement be specifically performed and carried into execution.

The seller appealed the decision on the basis that the parties did not intend to be legally bound to a sale and purchase of land by the Letter, and even if the parties did intend to be legally bound, the terms of their agreement were not sufficiently certain to be enforceable.

The Letter contained details of the following terms:

  • the purchase price;
  • payment of a non-refundable deposit on execution of the formal contract;
  • the nature of the contract as unconditional in the form of a put and call option;
  • settlement; and
  • insurance of the property until settlement.

The Letter clearly expressed that the offer was to be "unconditional", and this term was highlighted and underlined by the buyer.

What did the Court decide?

The main issue considered by the Court was whether the parties intended to be legally bound. The buyer contended that the parties intended for a binding agreement because the parties had completely agreed upon all the terms of their agreement, intended no departure from the agreed terms, but performance of the terms was conditional upon the execution of a formal contract. The seller, on the other hand, argued that the parties had not intended to make a concluded agreement at all unless a formal contract was executed.

The Court considered the unconditional nature of the offer and the seller's unqualified acceptance of the offer by way of her signature. Importantly, the Court noted that if the signed acceptance of the offer had no legally binding effect, either side could immediately shift its ground on any of the significant items in the further negotiation which would ensue, putting the parties back to where they were 12 months before the negotiations commenced. The Court concluded that the intention of the parties at the time that the agreement was entered into was to be legally bound and that the lack of formalities necessary to bind a buyer to a contract was not fatal to the binding nature of the agreement.

The Court rejected the seller's argument that the terms of the agreement were not certain, as there was no material uncertainty as to the substance of the rights and liabilities described as a put and call option.

The Court ordered that the appeal be dismissed and the seller pay the buyer's costs of the appeal.

How is this relevant?

The courts are clearly unwilling to interfere in a commercial transaction where the intention of the parties is clear at the outset. This decision highlights the importance of knowing what you are signing before you sign it; in particular, whether an offer is conditional or unconditional, as the unconditional nature of the offer in this case was a significant factor in the Court determining that the parties did intend to be bound by the agreement. If the offer contains terms similar to those mentioned above (particularly with regards to form of the contract) and requests an acknowledgement of the offer by way of signature, the agreement may be binding.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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