RES exam question on Contract & Agency Law: Mr Tan agrees to purchase a condo unit
Mr Tan agrees to purchase a condo unit. The signed OTP states: 'This option is subject to satisfactory replies to legal requisitions to be obtained by the buyer's solicitors.' Which of the following BEST describes the legal status of this arrangement?
- AIt is not a binding contract, because the words 'subject to' prevent any contract from forming until legal completion
- BA contract is formed, but performance is subject to a condition precedent: satisfactory replies to requisitions
- CIt is binding only on the seller; the buyer may withdraw freely at any time before completion without liability
- DIt is an agreement to agree, and therefore unenforceable at law until a formal S&P Agreement is signed by both
Show answer & explanation
Answer
B. A contract is formed, but performance is subject to a condition precedent: satisfactory replies to requisitions
Explanation
A 'subject to satisfactory replies to legal requisitions' clause creates a conditional contract (with a condition precedent), not a non-binding 'subject to contract' arrangement. A contract IS formed; however, the obligation to complete is conditional on the specified condition being met. This is distinct from 'subject to contract' (where parties intend not to be bound until a formal contract is signed). If requisitions are not satisfactorily resolved, the buyer may be entitled to rescind, but the OTP is not a mere invitation or non-binding.
Study the concept behind this question: Misrepresentation & an Estate Agent's Liability
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