YEUNG SIU HONG v. CHAN SIU MEE SANDIE

[A "provisional agreement for sale and purchase" which is, on its true construction, an agreement to enter at a later date into a formal contract for sale and purchase is a more agreement to agree and is not itself enforceable as a contract for sale and purchase]

1991, No.A3354

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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BETWEEN

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J U D G M E N T

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1. This action arises out of negotiations for a contract of sale and purchase of a residential property Flat B, 4/F, Bonham Court, 12 Bonham-Road, Hong Kong ("the property"), which went off when the intending vendor refused to sign his part of the contract on the ground that on the due date, 25th March 1991, the intending purchaser had failed to come up with the balance of the deposit ($134,000) due to be paid to the intending vendor on or before that date.

2. The material facts (as I find them) are as follows.

3. The plaintiff, the intending vendor ("the vendor"), is the owner of the property. In the spring of 1991, the vendor was in urgent need of money. He determined to sell the property in order to raise some. The vendor by his wife enlisted the help in this connection of a broker trading under the name of "Best Group & Property" ("the broker").

4. The broker advertised the property. The asking price was $1.55m. The defendant, the intending purchaser ("the purchaser"), responded to the advertisement.

5. Arrangements were made for the purchaser to view the property. She did so, on 14th March 1991. After doing so, she told the broker she was prepared to pay $1.54m. for the property, but with no commission to the broker (who would, therefore, have to look exclusively to the vendor for its commission). The vendor's wife, after discussion with the vendor, intimated to the broker that this was acceptable, and that a preliminary deposit of $50^,000 was expected.

6. The broker proposed a meeting of the parties at his office to sign what was described as a provisional agreement for the sale and purchase, but which, as I shall attempt to demonstrate later in this judgment, would have been more aptly described as an agreement preliminary to the sale and purchase (I shall call it hereafter "the preliminary agreement"). This meeting was duly arranged, and held later the same day, 14th March 1991. The vendor's wife attended the meeting on behalf of the vendor, who did not attend. The purchaser attended with her husband. In respect of the preliminary deposit of $50,000 which the vendor had requested, the purchaser offered the vendor's wife the purchaser's cheque for $20,000 made payable to the vendor. The vendor's wife, with some reluntance, accepted this. There was agreement that a further deposit of $134,000 would be paid, such that the total deposit (including the $20,000) would amount to $154,000, one-tenth of the agreed sale price. The vendor's wife intimated that the vendor wanted the further deposit paid as quickly as possible. It was agreed that it would be paid on the signing of the sale and purchase agreement, which it was agreed would take place on 25th March 1991. The vendor's wife says that she indicated that the further deposit had to be paid by cashier order, and that the purchaser agreed to this. The purchaser and her husband do not recall the vendor's wife making any such stipulation and do not accept that they agreed to it. I am prepared to'find that there was some talk of a cashier order. I am not prepared to find, as the vendor would have me do, that whatever took place resulted in a concluded agreement between the parties that the further deposit was to be paid in this and in no other way. (In coming to these findings of fact, I have had to rely on the evidence of the vendor's wife on the one hand, and the purchaser and her husband on the other hand. Neither side called the broker's representative, a Ms Tang, who had conducted the meeting, so I have had no independent evidence as to what took place.) It was agreed that the sale would be completed on 5th April 1991, but that on the signing of the agreement the purchaser should be allowed to enter the property for the purpose of decorating it.

7. I pause to see how matters had progressed so far. At this stage of the meeting the parties had agreed on a price; $1.54m. The vendor had accepted the purchaser's cheque for the preliminary deposit' of $20,000. The purchaser had agreed that she would pay a further deposit of $134,000 (making a total of $154,000). The vendor had requested that this be paid as soon as possible and had suggested 25th March 1991; and the purchaser had agreed to this. The sale was to be completed on 5th April 1991. The vendor had agreed to pay the broker's commission. Nothing else had been agreed, save that the parties were now to sign a preliminary agreement.in a form to be produced by the broker for their signature, and were to sign the sale and purchase agreement itself (the terms of which were of course still to be agreed) on 25th March 1991.

8. In these circumstances, had the vendor and the purchaser concluded at this stage an agreement that the vendor would sell and that the purchaser would buy the property? In my judgment, clearly not. They had agreed on, some of the terms of the transaction; but no more. Each side knew that a sale and purchase agreement was to be signed and that this was to be done on 25th March 1991. No agreement for the sale and purchase had, at this stage, been concluded; either orally, or in writing, or at all.

9. I return to the narrative. The parties having reached the limited measure of agreement to which I have referred, the broker produced its standard form of preliminary agreement for signature by the parties. This form had been completed to show the names and adresses of the vendor and purchaser; a description of the property, and the price agreed. It referred to payments to be made by the purchaser as follows: (1) $20,000 preliminary deposit to be paid on signing the agreement; (2) $134,000 to be paid on or before 25th March 1991; $1,386,000 to he paid on or before 5th April_.1991. (These payments amounted in total to the agreed price, $1,540,000. The form provided that "this provisional agreement must be completed on or before 25th March 1991 by signing the formal agreement at the solicitors' office". The name and address of the vendor's solicitors was given. It gave 5th April 1991 as "Date of Vacant Possession". The form contained further terms and conditions, among them terms that upon signing the agreement for sale and purchase of the premises on 25th March 1991, the vendor should pay the broker's commission of $7,700; if the purchaser should fail to sign the agreement for sale and purchase "within the-said date" [25th March 1991], the deposit would be forfeited and the vendor should have the right to resell the property to other parties; if the vendor failed to sign the agreement for sale and purchase "within the said date" [25th March 1991], the vendor should pay double the deposit to the purchaser; and, finally, a term that if for any reason, either the vendor or'the purchaser should fail to complete the sale and purchase "in the manner herein contained", the defaulting party should pay the agent $15,400 compensation "as liquidated damage". The form contained a receipt clause showing that the deposit of $20,000 had been received by the vendor; the number of the purchaser's cheque was given against the rubric "Cheque No." on the form. The vendor's wife and the purchaser each signed the form against the words "confirmed and accepted". The vendor's wife did not read the form before she signed it.

10. I shall return later in this judgment to consider the true effect of the signature by these parties of this preliminary agreement; before doing so I must return again to the narrative so as to explain how the proposed sale came to be aborted.

11. It will be recalled that the parties had agreed that the purchaser would pay the vendor a further sum of $134,000 on 25th March 1991, the date on which the agreement' for sale and purchase was to be signed. The purchasers instructed a solicitor in this connection, one B.C. Chow, of B.C. Chow & Co. to whom the purchaser had been introduced by her brother one Franklin Cheng. On 19th March 1991, Mr Chow wrote to Chan, Evans, Chung & To, the vendor's solicitors, about the transaction. Mr Chow, very properly, headed his letter "SUBJECT TO CONTRACT". Mr Chow's letter was itself in a standard form. It referred_.to the_.property the subject of the proposed sale; it stated that his firm had instructions to act for "the intended purchaser" of the property; and were given to understand that Messrs Chan, Evans, Chung & To were acting for the vendor. The letter continued as follows:

" We are instructed that our client is prepared to purchase the said property on the following terms and conditions:

	1. Purchase price	: HK$1,540,000.00
	2. Deposit	: HK$154 000.00 payable upon signing the formal Agreement for Sale and Purchase (of which an initial deposit $20,000.00 has been paid by our. client to your client directly on or before the date hereof).
	3. Balance of
	Purchaser Price	: HK$1,386,000.00
	4. Completion Date	: on or before 4th April 1991
	5. Legal Costs	: Each party shall pay its own legal costs
	6. Stamp Duty	: To be borne by the intended Purchaser
	7. Possession	: Vacant possession shall be delivered up to thePurchaser upon completion.
	8. Others	: (i) the Vendor shall make the    usual declaration of non-receipt of any adverse notices from any relevant Authority;
		(ii) Nil

Should the above terms and conditions are acceptable to yours, kindly send us your draft Agreement for Sale and Purchase together with all relevant title deeds and documents relating to the said property for our approval on behalf of our client.

Please note that nothing herein is binding on us or on our client unless and until the formal Agreement for Sale and Purchase is executed by our respective clients and exchanged."

12. This letter elicited a reply dated 22nd March 1991, also very properly headed "SUBJECT TO CONTRACT", and also in a standard form, from the vendor's solicitors. The reply referred to the property the subject of the proposed sale, and reads as follows:

"     With reference to your letter dated 19th March 1991 we send you herewith draft Agreement for Sale and Purchase (in duplicate) in respect of the captioned property for your approval on behalf of your client, the intended Purchaser.

    We also send you herewith on the usual undertaking that you will hold to our order and returnable on demand all the title deeds and documents relating to the said property as listed in the Schedule hereto. Please acknowledge receipt by signing and returning to us a copy of the Schedule.

    Should the said draft Agreement meet with your approval without amendment, kindly treat the same as an engrossment and return the same to us duly signed by your client and attested, together with your cheque for the sum of HK$134,000.00 being the deposit/balance of deposit payable to our client.

    Please note that nothing in this letter or the draft agreement shall be binding on our client until and unless our client shall have executed the same in due form."

13. The draft agreement for sale and purchase enclosed for the consideration of the purchaser's solicitors with the letter of 22nd March 1991 contained 35 clauses and a Schedule. In the Schedule, particulars of the transaction were set out. The vendor was named. The purchaser was not named. The purchase money was stated to be $1,540,000 to be paid and satisfied by the purchaser to the vendor as to (a) $20,000, being the initial deposit money and part payment of. the purchase money paid by the purchaser to.the vendor on or before the signing of the agreement; (b) $134,000, being the balance of deposit money and part payment of the purchase money paid by the purchaser to the vendor on the signing of the agreement; and (c) $1,386,000, being the balance of the purchase money to be paid.by the purchaser to the vendor upon completion. The completion date was stated to be on or before 5th April 1991. The rest of the draft agreement was in the vendor's solicitors' standard form.

14. Clause 19 of the draft agreement provided that time should, in every respect, be of the essence of the agreement. Clause 30 provided that each payment of purchase money or any part thereof required to be made under the agreement should be made on the date on which such payment was required by a cashier order issued by a licensed bank in Hong Kong or a cheque drawn by the payer's solicitors in favour of the payee for the relevant amount. Clause 33 provided that the agreement should supersede all previous agreement or agreements entered into by the vendor and the purchaser in respect of the property. I need not refer to any other of the 35 clauses contained in the draft agreement.

15. On 23rd March 1991, the purchaser's solicitors returned the draft agreement to the vendor's solicitors with certain amendments. The only signifcant amendment was one whereby it was provided that the purchaser should be permitted by the vendor on signing the contract to enter the property for the purpose of decorating it (as had been. arranged at the meeting on 14th March 1991). The vendor's solicitors approved and engrossed the agreement for signature and sent it by hand to the purchaser's solicitors on 25th March 1991.

16. A few days before 25th March 1991, Mr Chow telephoned Franklin Cheng to tell him to remind the purchaser to have the necessary money ready on 25th March 1991; she was to come to his office, with a cashier order made out in favour of his firm, by 4:00 p.m. on 25th March 1991. The timing was important. The firm's bank closed at 4:.30 p.m. Mr Chow would have to ensure that the cashier order was credited to his firm's account before he could issue his'firm's cheque made payable in favour of the other side's solicitors as requested in their letter of 22nd March 1991. And on 25th March 1991 the purchaser went to the bank to procure the cashier order, to be made payable to her solicitors.

17. But at 3:30 p.m. on 25th March 1991,Franklin Cheng telephoned Mr Chow. He told Mr Chow that the purchaser was still waiting in the bank to obtain the cashier order and might not be able to arrive at the office before 4:00 p.m. Mr Chow informed Franklin Cheng that the purchaser must come to the office with the cashier order before that time. He told him that he had to present it at his own bank before he could issue his firm's cheque to the vendor's solicitors.

18. Mr Chow also told his secretary to telephone the vendor's solicitors to see if they would take the purchaser's personal cheque. She did so and reported to him that they would not. Mr Chow waited for the purchaser to come to his office. She turned up at about 4:30 p.m. He explained that he would not be able to issue his firm's. cheque to the vendor's solicitors because he would now be unable to present the cashier order at his own bank. The purchaser asked for advice.

19. Mr Chow advised her to pay by personal cheque.. He gave the purchaser this advice because the preliminary agreement had contained no provision requiring the payment of the $134,000 to be made by a solicitor's cheque; and because the vendor had taken a personal cheque for the initial deposit of $20,000. He told me that he believed that then, and he believes that now, to have been sound advice.He explained the sale and purchase agreement to the purchaser and her husband and asked her to sign it.

20. At about the same time, he was told by his secretary that the other side had now agreed to accept the purchaser's personal cheque. He reported this good news to the purchaser and told the secretary to send the purchaser's personal cheque to the vendor's solicitors. This she did, under cover of a letter dated 25th March 1991, despatched by hand.

21. There was a conflict of evidence as to whether Mr Chow's secretary had had a second conversation with the vendor's solicitors' secretary during which she had been told that the purchaser's personal cheque would be acceptable. Mr Chow's secretary told me that she had had such a conversation and had been so told; the vendor's solicitors' secretary denied all this. For reasons which will appear, I find it unnecessary to resolve this conflict of evidence. I suspect there must at some stage have been some misunderstanding between the two secretaries; but, in any event, it does not matter since I find the evidence was certainly not sufficiently clear and unequivocal to justify me in finding that the vendor, if otherwise entitled to reject payment by personal cheque, had lost this right by virtue of something said by the vendor's solicitors' secretary to the purchaser's solicitors' secretary.

22. Be that as it may, the.vendor was not prepared to accept the purchaser's personal cheque in payment of the further deposit; and the vendor called off the transaction.

23. On 27th March 1991, the vendor's solicitors wrote to the purchaser's solicitors to inform them that they had no further instructions from the vendor to proceed with the sale. They returned the purchaser's cheque for $134,000.

24. On 8th April 1991, the vendor's solicitors wrote to the purchaser's solicitors explaining what they had done; they said that they had been instructed by the vendor to inform the purchaser's solicitors that the vendor would not accept any payment by means of a personal cheque as due payment of the balance of the deposit.

25. On 9th April 1991, the purchaser's solicitors wrote to the vendor's solicitors claiming that the purchaser's personal cheque was sent to the vendor's solicitors under cover of their letter of 25th March 1991 upon the oral agreement of the two secretaries. They added that they were unable to understand why the fact that the vendor's refusal to accept the purchaser's personal cheque was not mentioned in the letter of 27th March 1991. They reaffirmed the purchaser's willingness to proceed with the transaction and to pay by cashier order the further deposit of $134,000.

26. On 10th April. 1991, the vendor's solicitors wrote to the purchaser's solicitors protesting that their secretary never agreed that payment of the balance of the deposit was to be by personal cheque nor was she ever authorized to do so.

27. The vendor then changed his solicitors. The new solicitors, the solicitors now acting for the vendor in this action, wrote to the purchaser's solicitors on 25th April 1991. They alleged that by virtue of the preliminary agreement and what they called "subsequent agreement made between our respective clients", the purchaser was required, among other things, to pay a further deposit in the sum of $134,000 to the vendor on or before 25th March 1991 by way of a cashier order. They complained that the purchaser had failed to comply with that obligation and had thus repudiated the preliminary agreement. They complained that (as was the fact) the purchaser had registered this at the Land office. They called for vacation of the registration.

28. On 3rd May 1991, the purchaser's solicitors replied denying that the purchaser had agreed to pay the further deposit of $134,000 by cashier order. They pointed out that the preliminary agreement did not stipulate that the balance of the deposit was to be paid by cashier order. They added that "indeed a staff of your client's former solicitors orally agreed-with our Mr Chow's . secretary that our client's personal cheque would be acceptable". They mentioned in support. of their.stance that the payment of the initial deposit of $20,000 had been made by way of the purchaser's personal cheque. They threatened an action for specific performance.

29. But on 9th May 1991, the vendor got in first, by issuing the writ in this action, endorsed with the statement of claim, claiming damages for breach of contract and the vacation of the registration by the purchaser of the preliminary agreement at the Land Office. The defendant counterclaims, seeking specific performance.

30. I must now retrace the facts as I have found them, for-the purpose of explaining what the legal consequences are of what the parties said and did from the conception of this transaction until it miscarried on 25th March 1991.

31. As I have already indicated, it is clear that, until the parties signed the preliminary agreement, the whole transaction remained in the course of negotiation. Before signing the preliminary agreement either side could have changed its mind and refused to go on, without incurring any liability to the other.

32. But then the parties did sign the preliminary agreement. It will be recalled that, the preliminary agreement contained a number of terms some of which reflected what had already been agreed but others of which do not appear to have been discussed, or even mentioned, during the negotiations. In particular, it contained terms to deal with the situation if no sale and purchase agreement was in fact concluded.

33. What was the legal effect of this preliminary agreement, once the parties had signed it?

34. There are a number of possibilities; all but one of which must, on analysis, be rejected.

35. The first possibility is that the preliminary agreement operated as a note or memorandum of an agreement already concluded orally between the vendor and the purchaser. This analysis must be rejected. As I have pointed out, no concluded agreement had been reached before the broker produced the document. And in any event it contained, as I have indicated, a number of terms (such as those relating to what was to happen if a party did not sign the sale and purchase agreement) which the parties do not appear to have agreed at all. More than that, it contained no words reciting any prior agreement of sale and purchase (for example "the vendor has agreed to sell and the purchaser has agreed to purchase ..."). It cannot in these circumstances be treated, in my judgment, as a note or memorandum of an agreement already concluded.

36. A second possibility is that by signing the document the parties concluded an immediately binding agreement in writing for the sale and purchase of the property (albeit a "provisional" agreement, pending signature of a further more formal agreement for sale and purchase) but with each party having the right to withdraw on making payment of a sum of money to the other. This analysis must be rejected too; since the document contains nothing which can be construed as having that effect, either (for example, the vendor agrees to sell and the purchaser agrees to purchase ...").

37. The last possibility is that the agreement was not an immediately binding agreement for sale and purchase at all but simply an agreement to agree, coupled with an agreement on the steps to be taken, and the payments to be made, preliminary to the constitution of an agreement for sale and purchase (and with additional terms providing for what was to happen if no such agreement was in fact concluded). In my judgment this is the correct analysis, as was I think correctly appreciated by both the vendor's solicitors and the purchaser's solicitors, when they each headed their initial letters about the transaction "SUBJECT TO CONTRACT". The parties had merely agreed on some of the terms of the proposed transaction, on the footing that the contract itself was to be concluded by the signing of the formal agreement for sale and purchase. It is trite law that an agreement on some of the terms of a proposed sale does not constitute an agreement for sale; just as it is trite law that an agreement to agree on a contract of sale, the terms of which are as yet unsettled, is no agreement at all. Of course, when the terms of a contract are concluded, and nothing remains but to reduce it into a formal shape, the contract may be enforced. But not so if there are other points to be determined and made the subject of a future agreement (as each side's solicitors, in my view rightly, assumed here) : cp. Wood v. Midalev (1854) 5 De G.M. & G41, per Lord Justice Turner at p.46.

38. Once the true nature of the preliminary agreement in this case is appreciated, everything else falls into place. It was, in truth, a step in the negotiations for the sale, which were not to be concluded until the formal sale and purchase agreement was signed. The vendor was therefore entitled to withdraw from the sale at any time, provided^. that he did so before he signed the formal sale and purchase agreement. That is what happened. The purchaser, there being no concluded agreement for the sale and purchase, has nothing of which she can claim specific performance, and nothing the registration of which she is entitled to maintain at the Land Office.

39. There remains however the question of the consequences of a withdrawal by the vendor, provision for which had been made in the preliminary agreement. It will be recalled that the preliminary agreement provided that, if the vendor should fail to sign the formal agreement for sale and purchase, he should pay double the deposit to the purchaser. At this point the question arises whether in the events which happened the vendor has to pay to the purchaser, not $20,000, but $40,000. The answer to this question must depend on whether the vendor was justified in refusing to sign the formal agreement for sale and purchase on 25th March 1991. In my judgment, the vendor was justified in refusing to sign the agreement for sale and purchase on 25th March 1991. It seems to me proper to infer, from all the circumstances of the case, that time was of the essence of the purchaser's obligation, under the preliminary agreement, to pay the $134,000 on the 25th March 1991 if the sale was to go ahead; and that the vendor was entitled to expect that payment in cash or, at his own option, by a cashier order, or by a solicitor's cheque. The tender of the purchaser's personal cheque was, in my judgment, not good enough; and, as I have said, I am not prepared to find that there was anything in the conversation between the two solicitors' secretaries which justifies my coming to any different conclusion on this aspect of the matter. The vendor was not in breach of the preliminary agreement.

40. Accordingly, I propose to declare that no contract for sale and purchase of the property was ever concluded between the vendor and the purchaser; that the vendor is bound to repay to the purchaser only the preliminary . deposit of $20,000; and to order that the registration of the preliminary agreement in the Land Office be vacated. The counterclaim will be dismissed. I will hear counsel on a date and time to be appointed for the purpose on any question of costs or otherwise that may arise as a result of this judgment.