Option fee returned. Vendor and Vendor’s lawyer refused to accept exercise of Option. Can Buyer get specific performance?

Introduction

In this matter decided by the High Court, the Plaintiff buyer was granted an Option to Purchase by the Defendant seller. The Defendant then refused to accept the exercise of the Option by the Plaintiff on the grounds that the Option was invalid. The Plaintiff then sought specific performance of the Option.

Facts

The Defendant is the owner of a landed property (“the Property”). She entrusted all decisions relating to the sale of the Property to her brother, one Eric Tan. Eric Tan had placed regular sales advertisements for the Property between 1 January 2009 and 12 May 2009. X, a real estate agent managed to procure a buyer on 3 June 2009 for the sale price of $1.3m. X then obtained a signed Commission Agreement and Option to Purchase from the Defendant on 3 June 2009 through Eric Tan. In the Commission Agreement, there was a Time Condition which stated the “option money to be given by 4pm, 4 June 2009”. This Time Condition was not however stated in the standard agency Option to Purchase which was signed by the Defendant and issued to the Plaintiff.

X then met up with the Plaintiff to exchange the signed Option to Purchase for the cheque for $13,000.00 being the 1% Option fee (“the Option Fee Cheque”) which was issued in favour of the Defendant. This was done around 6.45pm on 4 June 2009. X then tried to pass the Option Fee Cheque to Eric Tan on several occasions between 4 to 5 June 2009 but Eric Tan declined, informing her that he had given her up to 4pm and later extended it to 4.30pm on 4 June 2009 to pass the Option Fee Cheque. Since the Time Condition was not fulfilled, the option was not valid. On 5 June 2009, X deposited the Option Fee Cheque at Eric Tan’s home and left. The Option Fee Cheque was sent back to X’s office on 8 June 2009 with a covering letter repudiating the option to sell.

Notwithstanding the aforesaid, the Plaintiff instructed solicitors to proceed to exercise the Option in the prescribed manner on 16 June 2009 with the Defendant’s named Option solicitors.

This was returned by the named solicitors in the Option with a covering letter stating that they did not act for the Defendant in the sale of the Property. The next day (still within the Option period), the Plaintiff’s solicitors exercised the Option by sending the Exercise of Option letter to the Defendant directly. This was again returned by the Defendant’s lawyer with a covering letter stating that the Option Fee Cheque was not paid in accordance with the Time Condition, i.e. by latest 4pm extended to 4.30pm on 4 June 2009. The letter also stated that there was therefore no valid option and the Plaintiff had no right to exercise the Option.

Issues

Whether the exchanged Option remains exercisable, where the Option grantor returns the Option Fee Cheque after the grant but prior to the exercise of the Option?
Whether the Option grantee is bound by the condition “only if option money is given by 4pm, 4 June 2009” (“the Time Condition”) contained in the Commission Agreement but not contained in the Option?
Whether the Acceptance and tender of the balance payable in exercise of the Option, constitutes a valid exercise of the Option in light of the prior return of the Option Fee Cheque?

On Issue 1:

The Court observed that it is settled current practice in relation to options to purchase land in Singapore that the tender of a cheque in exchange for the grant of an option is good tender for the payment of the option money, whilst the exercise of an option is customarily effected by payment to the nominated solicitors. A bill of exchange, once given, is to be treated as cash and is to be honoured unless there is some good reason to the contrary. In the same way, a tender of a cheque which is subsequently dishonoured, would no longer contractually bind the grantor to the Option.

The objection by Eric Tan did not relate to the validity of the tender of a cheque as a cheque, but rather to the Timing Condition. He refused to accept the Option Fee Cheque that was given to him by X on several occasions and ventually returned it to her when it was deposited at his home.

The Court took the position that there was no question at all of the cheque being dishonoured. Accordingly, upon the tender of the Plaintiff’s cheque to X, the Option became thereupon operative and binding against the Defendant upon its terms. The fact that it was subsequently returned by Eric Tan and the Defendant had no bearing on the validity and effectiveness of the Option. The Court also pointed out that this was important otherwise a grantor of an option would thereafter be able to frustrate the exercise of an option, simply by not encashing the cheque, tearing it up or returning it.

On Issue 2:

The Time Condition was contained in the Commission Agreement with X and not in the Option to Purchase itself. When the signed Option was given to X which did not contain the Time Condition, she had actual authority to exchange it for the Option Fee Cheque.

It is settled law that the principal cannot escape liability for acts done by the agent which falls within the apparent scope of his authority. Further, a principal is nevertheless bound to the third party who has no knowledge of any limitation of authority, such limitation being known only by the principal and the agent. The Court was of the view that the Time Condition was not made known to the Plaintiff and even if it had been made known to the Plaintiff, it would not have affected his rights or obligations arising from the Option itself. The Time Condition was in the first place a limitation of the agent’s authority with respect only to the agent’s entitlement to commission if payment was not made by 4pm. The Court therefore took the position that the Plaintiff was not bound by the Time Condition stipulated in the Commission Agreement.

On Issue 3:

The Court pointed out that a unilateral repudiation by the Option grantor which is not accepted by the Option grantee, results in the option surviving and being exercisable in accordance with its terms. As the return of the cheque by Eric Tan did not cause the Option to be invalid, the subsequent exercise of the Option by the Plaintiff in full compliance with the terms expressed in the Option was therefore binding. Accordingly, the Court held that the exercise of the Option by the Plaintiff through his solicitors on 16 June 2009 to the Defendant’s named solicitors in the Option by delivery of the duly completed acceptance copy and cheque for the balance deposit was a valid and binding exercise of the Option according to its terms.

Conclusion

In light of the above, the Court ordered specific performance of the Option. In addition to other ancillary orders on costs and interest, the Defendant was ordered to execute all necessary documents and take all necessary action to transfer the Property to the Plaintiff.

– Written by Jacintha Pillay, Advocate & Solicitor

Article contributed by:

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