Seah Kiat Seng v Amtel Exports Pte Ltd

• Jurisdiction: Singapore
• Judge: MPH Rubin J
• Judgment Date: 08 August 1996
• Neutral Citation: [1996] SGHC 156
• Docket Number: Originating Summons No 225 of 1996
• Date: 08 August 1996
• Published date: 19 September 2003
• Year: 1996
• Plaintiff Counsel: Godwin Campos (Rodyk & Davidson)
• Citation: [1996] SGHC 156
• Defendant Counsel: Madam Assomull (Assomull & Partners)
• Court: High Court (Singapore)
• Subject Matter: Cheques,Sale of land,Banking,Cheque in acceptance of option dishonoured,Land,Whether time for payment of essence,Whether option validly exercised -Whether vendor entitled to forfeit option fee -Nature of option document,Whether cheque to be treated as cash for option to purchase property,Dishonour,Option,Effect of dishonour

In this application, the dispute between the parties revolved around an option to purchase a property known as 18 Ewe Boon Road, Block 2, #04-02 Palm Spring, Singapore (the property) granted by the defendants to the plaintiff. The plaintiff`s application was, inter alia, for a declaration that the option granted to him was validly exercised and that there was in existence a binding and enforceable contract for the sale and purchase of the property between the defendants and the plaintiff - despite the fact the cheque issued by the plaintiff, when exercising the option on the last day, was dishonoured upon presentation.

Facts

The facts which gave rise to the action can be summarised as follows. On or about 22 January 1996 the defendants, the owners of the property, in consideration of an option fee of $15,800 paid by the plaintiff granted the latter or his nominees an option to sell to them the defendants` right, title and interest in the property for S$1,580,000 subject to the terms and conditions stated in the option document. The preamble to the option which sets out the time frame and the manner in which the purchaser was to exercise the option reads as follows:

The Purchaser may accept this offer by signing the portion of this option marked `Acceptance Copy` and delivering it within two (2) weeks from the date of this option by 4pm (the acceptance date) to the vendor`s solicitors, Messrs Assomull & Partners, together with payment of 10% of the sale price (the deposit), less the option fee who shall forthwith release the moneys to the vendor. The option fee will form part of the deposit.

If this offer is not duly accepted by the acceptance date, it shall immediately lapse whereupon the option fee shall be forfeited by the vendor.

Upon the acceptance of this offer , the terms and conditions of the sale hereinbelow shall forthwith bind the vendor and the purchaser. [Emphasis added.]

The plaintiff reportedly accepted the offer contained in the option on the last day, ie 5 February 1996, and caused to be sent to the defendants` solicitors a cheque drawn by him on the Post Office Savings Bank for a sum of S$142,200, which added to the earlier payment of the option fee of $15,800 would have in the normal course of events, constituted the requisite 10% deposit sum stipulated under the option. Contemporaneous with the despatch of the said cheque or so soon thereafter, the plaintiff had also caused a caveat to be lodged against the said property.

The cheque thus received was presented for payment by the defendants on 6 February 1996. However, on being advised by their bankers on 7 February 1996 that it had been returned unpaid with the remark: `Effects not cleared`, the defendants` solicitors, at once, on 7 February 1996 itself notified the plaintiff`s solicitors through fax and post in the following terms:

... We are instructed by our clients that the cheque for $142,200 forwarded by you in purported exercise of the option had been presented for payment by our clients and the same had been dishonoured.

In view of the above, our clients are treating the option as having expired without being validly exercised and are forfeiting the option fee paid thereunder.

There was, subsequently a proposal by the defendants to grant a fresh option to the plaintiff, at a price to be negotiated but this move came to naught since parties did not wish to yield ground and started to lock horns on whether the option was validly exercised or not. In the result, the defendants proceeded to enter into another agreement with a third party to sell them the property and the plaintiff, on his part, filed the application herein to contest the defendants` declared position.

The plaintiff`s averments as contained in his affidavit filed on 8 March 1996, read as follows:

... I exercised the option correctly and in accordance with the said option to purchase.

... On 8 February 1996, M/s Assomull & Partners wrote to my lawyers informing that they were treating the option as having expired without being validly exercised and were forfeiting my $15,800 (option fee paid) because my bank had not cleared my cheque.

... I was most surprised. Not only had I ensured that my then remaining bank balance would have sufficient funds to clear the cheque, I also instructed my wife for a further cheque for $8,000 to cover the contingency of my income tax-Giro payment taking effect at the critical time. The bank had a balance of S$153,221.58 on 6 February 1996. Enclosed ... is a true copy of the bank statement. The reason for the non-clearance of the cheque was that the Giro payment for my income tax did take effect and my wife`s cheque which was deposited to act as a cover, did not clear as it was supposed to . These circumstances were not within my control and I fail to see how they can be construed as detracting from my intention to purchase the property. [Emphasis is mine.]

... I was informed of the situation only on 8 February 1996 when my lawyers informed me of the letter they received from the defendants` solicitors that day. I immediately telephoned the bank and arranged to have cashier`s order for the full sum of $142,200 sent to replace my cheque. My cashiers` order was obtained on the same day and it was tendered for payment to the defendants` lawyers. Enclosed please find a copy of my cashiers` order and the letter accompanying the same. My cashiers` order was rejected by the defendants. ...

... I truly believe that I should not be deprived of my right to proceed with the purchase of the said property and I ask for an order that I be allowed to do so immediately.

Arguments

It was common ground between the parties that the cheque presented upon the exercise of the option had been dishonoured with non-payment. Nevertheless, the plaintiff`s hypothesis in the hearing was that a cheque once received ought to be treated as equivalent of cash and even if the said cheque were to be dishonoured, the plaintiff`s relief lay not in treating the option as having expired but to bring an action on the cheque. In this connection, plaintiff`s counsel invited the court to the pronouncements of Lai Kew Chai J in Wong Fook Heng v Amixco Asia Pte Ltd [1992] 2 SLR 342 at p 345 and the comments by this court in Min Hong Auto Supply Pte Ltd v Loh Chun Seng & Anor [1993] 3 SLR 498 at p 517A-B. He also relied on another Singapore High Court decision in Ng Soo Khim v Heng Teo Bong [1993] 1 SLR 407 where Goh Phai Cheng JC appeared to have held that there would, in law, be a binding contract of sale between the parties notwithstanding the feature that the cheque forwarded in payment of the purported exercise of an option had been dishonoured. Counsel added that the dishonour in the case herein was entirely unintended and was not within the control of the plaintiff.

The contentions of the defendants were extensively set out in their counsel`s written submission. Suffice it if I said that the mainstay of the defence was that the dishonour of the cheque rightly entitled the defendants to treat the option as having lapsed and to forfeit the option fee since time for payment under the option was of the essence. Referring to the plaintiff`s rationalisation in his affidavit that ` the reason for [the] non-clearance of the cheque was that the Giro payment for [his] income tax did take effect and his wife`s cheque which was deposited to act as a cover, did not clear as it was supposed to `, defendants` counsel submitted that this explanation was in disharmony with an earlier explanation contained in the plaintiff`s solicitors` letter dated 8 February 1996, where it was stated ` that the [plaintiff`s] cheque was dishonoured not because he had no intention to pay the said amount but that his bank did not follow his instructions for the transfer of funds from his savings account to his current account .`

Decision

Option documents, such as the one the court was asked to adjudicate upon in the present case, are commonplace and well entrenched in real estate transactions in Singapore and Malaysia. The legal nature and effect of such documents were a subject of discussion by the Malaysian Federal Court in Subramanian Chettiar & Ors v JC Chang Ltd [1969] 2 MLJ 176 at p 178 where the Federal Court held that in law an option is a conditional contract and is to be distinguished from an offer. Gill FJ delivering the judgment of the court, said at p 179:

An offer is to be distinguished from an option, the latter being a contract or other act in the law containing a term by which one party (who may be called the optionholder) is empowered to elect within a specified time whether the contract or other act in the law shall operate further than by conferring the power of so electing it has already done. In other words, an option is an act in the law which is conditional upon the optionholder electing that it shall become fully and (so far as regards the power of election) unconditionally operative between the parties. ... For example, A, the owner of Blackacre, may agree with B that in consideration of o1 paid by B, B shall be entitled to purchase Blackacre for o100 if within one month he notifies A of his election to do so. In such a case A has entered into a conditional contract with B to sell Blackacre to him and this contract ceases to be conditional and becomes absolute so soon as B fulfils the condition of exercising the option in the stipulated manner. The case is not one of a mere revocable offer; on the contrary the seller has received consideration (viz o1) for a promise to sell; and the promise, which would otherwise have been honorary merely, has thereby become a contract. (See pp 132 and 133 of Salmond and Williamson Contracts (2nd Ed).)

... The true formula of the grant of an option (for the sake of simplicity taking only the case of an option by way of simple contract) is not: `I promise for good consideration...