Subject to Contract, a Booking Deposit and a Misleading Turnover Figure
On 4 March 2024, a vendor's auctioneer sends a purchaser a draft contract for a licensed restaurant in Galway, marked 'subject to contract'. The purchaser pays a €20,000 'booking deposit' to the auctioneer and signs no contract. The vendor has said in an email that the restaurant 'turned over €850,000 last year and has a secure 15-year lease'. The purchaser's solicitor later discovers that the accounts show turnover of €620,000, that the lease has a break clause at year 5, and that a right of way over the rear yard is unregistered. The purchaser has spent €45,000 on surveyors, an architect, a fire consultant and a planning pre-application. The vendor now says the contract is binding, refuses to return the deposit and threatens to resell. The purchaser wants the deposit back and compensation for the €45,000. The draft contains an entire agreement clause and a clause stating that no representation has induced the contract. No contract has been exchanged or signed by either party.
1. Is there a binding contract? Consider the legal effect of 'subject to contract', the booking deposit and the absence of a signed writing.
Read the worked answer
'Subject to contract' creates a strong presumption that the parties do not intend to be bound until formal exchange: the documents are preparatory. The booking deposit is not a contract deposit; it is normally refundable and is paid to the auctioneer, not the vendor. There is no signed contract and no memorandum satisfying the Statute of Frauds 1695 for a sale of land. The draft is unsigned and expressly subject to contract. The vendor's argument that the contract is binding would require clear evidence of a contrary intention, which is absent. The entire agreement clause cannot create a contract; it only operates if a contract exists. The purchaser should demand return of the €20,000 and be ready to sue for money had and received if it is not returned.
2. Can the purchaser recover the €45,000? Analyse misrepresentation, negligent misstatement and the entire agreement clause.
Read the worked answer
The €45,000 is harder. If there is no contract, the purchaser cannot claim for breach of contract. A claim for misrepresentation normally leads to rescission of a contract, and there is no contract to rescind. The purchaser could frame a claim in negligent misstatement: the vendor made a false statement of fact about turnover and the lease, within a special relationship, and the purchaser reasonably relied by spending money. The entire agreement clause is not automatically a defence because it is in an unsigned draft and may not be incorporated; but it is evidence that the purchaser was warned not to rely on pre-contract statements. The 'secure 15-year lease' statement was misleading because of the break clause. Causation is arguable: would the purchaser have spent €45,000 if told the truth? The claim is not hopeless, but the purchaser must show reliance and that the loss was foreseeable. A claim in deceit would require proof of knowledge of falsity, which is not yet established.
3. What practical steps should the purchaser's solicitor take now?
Read the worked answer
Write immediately to the auctioneer and vendor: demand return of the deposit within seven days, assert that no contract exists, and reserve all rights. Do not exchange or sign anything. Preserve the email, the draft contract, the accounts, the lease and all invoices for the €45,000. Ask for the certified accounts and the title documents. Consider a without-prejudice offer to settle for the deposit plus part of the costs. If the deposit is not returned, issue proceedings in the Circuit Court for the €20,000 and, if counsel advises, the €45,000 in tort. Report the conduct to the auctioneer's regulator if there is evidence of misleading advertising. Advise the client that litigation risk and costs may make a negotiated outcome preferable.