RES exam question on Contract & Agency Law: Mr Tan exercises an option to purchase a condominium unit
Mr Tan exercises an option to purchase a condominium unit. A special condition says the purchase is 'subject to satisfactory replies to legal requisitions' from the authorities. The seller's salesperson tells the seller that, because of the words 'subject to', nothing is binding yet and he can still accept a higher offer. What is the legal effect of the special condition?
- ANo contract has formed, as 'subject to' works the same way as 'subject to contract'.
- BThe contract binds the seller alone, leaving Mr Tan free to withdraw for any reason before completion.
- CA contract has formed, but completion depends on satisfactory replies to the requisitions.
- DIt is an agreement to agree, unenforceable until a formal sale and purchase agreement is signed.
Show answer & explanation
Answer
C. A contract has formed, but completion depends on satisfactory replies to the requisitions.
Explanation
Answer: A contract has formed, but completion depends on satisfactory replies to the requisitions. The condition governs completion, not formation.Rule: Exercising an option creates a binding contract of sale. A condition such as satisfactory replies to requisitions is a term of that contract on which completion depends; if the replies are unsatisfactory, the contract's own terms say what follows.Source: General law of contract, applied in Singapore; /learn/option-to-purchase-singapore
Why the other options are wrong
- 'Subject to' works like 'subject to contract': 'Subject to contract' signals no intention to be bound. This condition is a term of a concluded contract, so the seller cannot accept a higher offer.
- Binds only the seller; Mr Tan may walk away: Both are bound. The condition protects Mr Tan only if the replies are in fact unsatisfactory.
- Agreement to agree until a formal agreement: The exercised option is the contract, so no further formal agreement is needed.
Study the concept behind this question: Misrepresentation & an Estate Agent's Liability
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