1. Introduction

The phrase “subject to contract” is sometimes used by estate agents and lawyers in property transactions in Nigeria. The question is whether the use of the phrase “subject to contract” prevents the creation of a binding and enforceable contract until a formal agreement is prepared and signed by the parties.

  1. Judicial authority

2.1 In International Textile Industries Ltd v Aderemi (1999), the landlord issued an offer letter marked “subject to contract” stating the terms of the lease which were accepted by the tenant. A cheque for the rent was issued and the landlord by letter again marked “subject to contract” accepted the payment. Meanwhile, the landlord changed their mind, sold the property to another person and refused to conclude the lease. The tenant filed an action claiming there was a binding contract to create a lease of the property but the landlord countered that since the letters were marked “subject to contract” there was no binding contract between the parties.

2.2 The Supreme Court held that there was a binding and enforceable contract to enter into a lease despite the use of the phrase “subject to contract” by the landlord. The court examined the meaning and relevance of the phrase “subject to contract” and said that the phrase is suited to English conveyancing practice which is governed by the Law Society’s Conditions but is inappropriate in our local conveyancing practice. Their lordships made the following pronouncements on the issue. His lordship Uwaifo JSC said;

“But more fundamental in regard to the use of those words in the circumstances of our established conveyancing procedure is the fact that it is clearly unwarranted, as I hope I have earlier demonstrated, to rely on them to frustrate or indeed sabotage by laying ambush with a purely sinister ‘subject to contract’ cudgel, a contract already fully concluded in all material particulars, the terms and validity of which the court can, or ought readily to, ascertain from documents available. The term ‘subject to contract’ has no settled effect – or shall I say no magic effect – yet, in my view, in our existing arrangement and procedure for conveyancing, whenever that phrase is used, it is my opinion that the merit and worth of it should always be open to the court to decide. That is one way of ensuring the integrity of concluded arrangements.”

2.3 In his concurring judgment Iguh JSC also said,

“There can be no doubt that as a general rule, the courts in appropriate cases construe the words ‘subject to contract’ or such similar incantations so as to postpone the incidence of liability until a formal contract is drawn up and accepted by the parties. It must however be stressed that the court must refuse to postpone such incidence of liability where there exists cogent and compelling evidence of a contrary intention on the part of the parties, the use of the phrase “subject to contract” notwithstanding. It must in each case be a question of construction whether the parties intended to undertake immediate obligations or whether they were suspending all liability until certain events happen.”

2.4 Conclusion

What this means, is that when parties to any property transaction have exchanged letters and agreed on terms and there is consensus ad idem on the major terms of the transaction, the courts will not allow one party to withdraw from its obligation under the guise that the negotiations were subject to contract or that no formal agreement had been prepared. Rather, the courts will declare and enforce a binding contract between the parties.