THE FUTILE EXERCISE OF THE OPTION TO PURCHASE AS A PRE-CONDITION FOR RECOVERY OF OPTION SUMS:

• Author: DENNIS ONG CHIN SIEW
• Date: 01 December 1991
• Published date: 01 December 1991
• Citation: (1991) 3 SAcLJ 133

Lee Hooi Lian v. Kuay Guan Kai

Introduction

Solicitors in conveyancing practice often use the purchaser’s option to purchase as a conveyancing device in effecting an agreement for the sale and purchase of property. For an agreed consideration (option sum), the optioner grants the optionee an option to purchase his property upon the terms and conditions stipulated in the option. The optionee is required to exercise the option within the given period of the option (option period), failing which the option expires and the option sum is forfeited. On the other hand, upon the valid exercise of the option to purchase, a sale and purchase agreement is formed.

It is however surprising to note that despite the common usage of the option to purchase in conveyancing practice, the law on this subject remains relatively vague and uncertain. This scepticism was highlighted in a recent case1 decided in the High Court of Singapore, raising the intriguing question of whether an optionee was able to refuse to exercise the option, but nevertheless demand and be entitled to refund of the option sum after discovering that the property was affected by a road line. Undaunted by the paucity of authorities in point, the court nevertheless allowed the optionee his claim, and in so doing kindled a candle in this otherwise obscure area of the law.

The facts of the case are relatively straightforward, and may be succinctly stated thus: On 8 July 1987, in consideration of $5,000, the defendant optioner granted an option to the plaintiff to purchase a certain property upon the terms and conditions set out in the option. The option was to have been exercised o.n or before 4 p.m. of 21 July 1987 in the usual way. So far as material, clause 7 of the option provided that:

“…if the property is affected…to any extent whatsoever by…any road line…then the [sale and purchase agreement] may be rescinded at the purchaser’s option and in such event the vendor shall forthwith refund to the purchaser all monies paid by the purchaser to the vendor…”

One and a half hours before the expiry of the option, the plaintiff’s solicitors wrote to the defendant’s solicitors. Having referred to clause 7

the plaintiff’s solicitors stated that “the said property is affected by roadline 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, and asked for refund of the $5,000 option sum.

On 22 July 1987, the defendant’s solicitors replied to say that as the plaintiff did not exercise the option, the option sum of $5,000 was forfeited. The defendant’s case was that until a contract had come into being by the plaintiff validly exercising the option, there was no contract to speak of, and therefore, clause 7 [premised on a valid contract] was inapplicable. In rejoinder, the plaintiff stated that they were entitled either to rescind the option or to accept the defendant’s inability to convey a property which is unaffected by any road line as an anticipatory breach on the latter’s part.

In the Magistrate’s Court, the Deputy Registrar granted the defendant unconditional leave to defend the action on the grounds that the case raised a point of law to be tried. The plaintiff appealed to the High Court.

The Issues

The High Court had to decide whether an optionee, upon discovering a fact which would entitle him to rescind the option had it been validly exercised, was nevertheless entitled to a refund of the option sum despite his failure in exercising the option. Put another way, the court had to decide whether the right of the optionee for refund of monies depended on the exercise of the option, or did the optionee have rights quite independently of whether the option was exercised, particularly the right to refund of monies paid. This entailed a discussion of the legal status of an option, which proved to be a rather obscure area of the law.

The Judgment

In a reserved judgment...