To be or not to be....a binding contract

Summary

In the recent case of Joanne Properties Ltd v Moneything Capital Limited and Moneything (Security Trustee) Limited, the court have confirmed the enforcement of the term “subject to contract” and made it clear that if the term is to be disapplied then it must be clear that this is what the parties intended.

Assessment

The recent case has reinforced that in determining when a contract is binding, the phrase “subject to contract” will be used as evidence that the parties are only in negotiations and no binding contract exists. The court further confirmed that once the negotiations have been marked as “subject to contract” then it will continue to be treated as so irrespective of whether further communications are marked as such. This will only change when it is clear that the parties intend to be bound.

What should you be doing?

The case reinforces the importance of ensuring that you are clear in all negotiations whether the matter is still a “negotiation” or you intend it to be binding. Whilst the court have reiterated that once you have stated that it is “subject to contract” then the assumption will be that this continues until such time as the parties are clear that they intend to be bound – the safest approach is always to ensure that negotiations are cleared stated as subject to contract.

The facts

Joanne Properties Ltd (JP) borrowed money from Moneything that was secured by way of a property legal charge. JP fell into arrears and initially sort to set aside the loan and the charge. A compromise was reached whereby the property was to be sold. £140,000 of the sale proceeds was then to ring-fenced to be allocated subject to resolving the claim between the parties. The issue before the court was whether there was an agreement over the £140,000. Various correspondence between lawyers had been marked as “subject to contract”. The court held that there was no binding agreement.