Lee Hooi Lian v Kuay Guan Kai

• Jurisdiction: Singapore
• Judge: Chao Hick Tin JC
• Judgment Date: 28 February 1990
• Neutral Citation: [1990] SGHC 13
• Docket Number: Suit No 1395 of 1988
• Date: 28 February 1990
• Year: 1990
• Published date: 19 September 2003
• Plaintiff Counsel: Roderick Martin (Ramdas & Wong)
• Citation: [1990] SGHC 13
• Defendant Counsel: Lee Mun Hooi (Lee Bon Leong & Co)
• Court: High Court (Singapore)
• Subject Matter: Whether failure to exercise option a ground for refusing refund,Conveyance,Whether option must be exercised before clause allowing rescission due to unsatisfactory reply to legal requisition could be relied on,Contract,Whether option sum recoverable under clause,Option not exercised by buyer due to unsatisfactory reply to legal requisition,Land,Refund of option money,Option not exercised,Repudiation

Cur Adv Vult

On 8 July 1987, in consideration of a sum of $5,000 (option sum), the defendant granted an option to the plaintiff to purchase the property at No 36, Jalan Jintan, Singapore 0922 (the property) for a sum of $425,000 and on the terms set out therein. The option was to be exercised by the plaintiff by signing on the option and delivering the same together with a cheque for $37,500 (representing 10% of the purchase price less the option sum) to the vendor`s solicitors by 4pm on 21 July 1987.

Among the terms set out in the option is cl 7 which reads as follows:

The sale and purchase herein shall be subject to the purchaser`s solicitors receiving satisfactory replies to their legal requisitions and applications for interpretation plans to the various government departments and Mass Rapid Transit Corporation (MRTC) insofar as such replies/interpretation plans relate to the property and if any such replies and/or interpretation plans are found to be unsatisfactory or if the property is affected or may be affected to any extent whatsoever by the Mass Rapid Transit System, any road line, any drainage line, or any road or drainage proposal or government acquisition or scheme or intended government acquisition or scheme then this agreement may be rescinded at the purchaser`s option and in such event the vendor shall forthwith refund to the purchaser all moneys paid by the purchaser to the vendor or the vendor`s solicitors but without any interest compensation or deductions whatsoever and thereupon neither party shall then have any claim or demand against the other for costs damages or compensation or otherwise ... . (Emphasis added.)

On 21 July 1987, at 2.30pm and well before the hour at which the option was due to expire, the solicitors for the plaintiff wrote to the solicitors for the defendant informing the latter, after referring to cl 7, that they have `ascertained that the said property is affected by road line and that in the circumstances [their] client is not in a position to exercise the said option`. They enclosed a copy of the road interpretation plan. The solicitors for the plaintiff also asked for the refund of the $5,000 as soon as possible.

On 22 July 1987, the solicitors for the defendant replied to say that as the plaintiff did not exercise the option dated 8 July 1987, the option sum of $5,000 was forfeited. The defendant contended that until a contract had come into being by the plaintiff exercising the option, there was no basis for the plaintiff to claim the refund of the option sum. In rejoinder, the solicitors for the plaintiff stated that as the defendant was unable to perform the contract in the sense of conveying a road line free property, and as the plaintiff was not prepared to waive this condition, the plaintiff was entitled either to rescind the option or to accept the defendant`s inability to convey such a property as an anticipatory breach on the latter`s part.

This matter came before me by way of an appeal from the decision of the deputy registrar of the subordinate courts who granted unconditional leave to the defendant to defend the action on the ground mainly that there is a point of law to be tried. As the facts are not in dispute and as the point is clearly one of law and adopting the reasoning propounded by Goff LJ in European Asian Bank v Punjab and Sind Bank [1983] 2 All ER 508 at p 516, I felt that I should decide the matter rather than grant the defendant leave to defend.

Let me say at the outset that under general contract law there cannot be any doubt that an innocent party may rely on an anticipatory breach on the part of the other and treat himself as having been discharged from the performance of the contract and sue for damages. This is clearly set out in Chitty on Contracts (25th Ed) at para 1604:

If, before the time arrives at which a party is bound to perform a contract, he expresses an intention to break it, or acts in such a way as to lead a reasonable person to the conclusion that he does not intend to fulfil this part, this constitutes an `anticipatory breach` of the contract and entitles the other party to take one of two courses. He may `accept` the renunciation, treat it as discharging him from further performance and sue for damages forthwith, or he may wait till the time for performance arrives and then sue.

At para 1612 the author states:

Anticipatory breach of contract may be constituted by impossibility as well as by renunciation and similar principles apply to both.

An inability to perform need not be due to a deliberate act on the part of the wrongdoing party. So long as the inability existed it is no defence for that party to say that he is willing but is unable to perform: see Universal Cargo Carriers Corp v Citati [1957] 2 QB 401 at p 437.

However, as I understand it, the contention of the defendant is a narrow one. The defendant does not dispute those general principles of contract law as set out in Chitty . What he is saying is that until the option has been exercised, and the contract to purchase has come into being, the plaintiff is not entitled to rely on any of the clauses set out in the option, which will only form the terms of the contract when the option is exercised. The defendant does not dispute that if the plaintiff had exercised the option, he would be entitled to a refund of the option sum.

It is clear beyond doubt that an option supported by consideration is a contract: see United Dominions v Eagle Aircraft Services [1968] 1 All ER 104 at p 109 per Diplock LJ. Its creation is governed by ordinary contractual principles. But it is a unilateral kind of contract which as explained by Diplock LJ:

... does not give rise to any immediate obligation on the part of either party to do or to refrain from doing anything except possibly an obligation on the part of the promisor to refrain from putting it out of his power to perform his undertaking in the future ... it will only do so on the occurrence of the event specified in the contract, viz the doing (or refraining from doing) by the promisee of a particular thing.

Barnsley on Land Options (1st Ed) describes the nature of such an option in these terms (at p 11):

The grant of an enforceable option to purchase land confers on the grantee a right to require the grantor to convey the land to him, subject to his compliance with the terms of the option. It is a kind of unilateral contract, which imposes on the grantor an obligation to enter into the `main` or `primary` contract with the grantee on the occurrence of the event specified in the unilateral contract, coupled with a promise

There appears to be a paucity of English or Singapore authorities on the issue now before me, ie whether the plaintiff must first exercise the option before he may rely on cl 7 therein to claim the refund of the option sum. However, counsel for the plaintiff has cited to me a number of useful American decisions which have addressed this issue. I propose to refer to several of them. First is the case Fullington v Penn Phillips Co (1964) 395 Pac Rep (2 Ed) 124. This was a case where a tenant had a three-year lease of land with an option to purchase. Some seven months later the owner repudiated the lease including the option to purchase and requested the tenant to vacate the premises. Two months later, the tenant brought an action to recover damages based on the difference between the option price and the market price of the property. At the trial the owner objected to the admission of evidence of the market value of the land...