Branca v Cobarro [1947] KB 854

Facts

  • The dispute concerned the sale of a mushroom farm between Mr. Branca (buyer) and Mr. Cobarro (seller).
  • The parties discussed terms and prepared a written document specifying sale price and property details.
  • The document was marked "subject to contract."
  • A disagreement arose as Mr. Branca argued that a binding contract existed, while Mr. Cobarro asserted that the "subject to contract" phrase meant no final agreement had been reached.

Issues

  1. Whether the use of the phrase "subject to contract" in the written document prevented the formation of a binding contract between the parties.
  2. Whether the actions or intentions of the parties could override the explicit "subject to contract" wording under certain circumstances.

Decision

  • The Court of Appeal found in favor of Mr. Cobarro, holding that the "subject to contract" phrase demonstrated both parties did not intend the document to have legal effect until a final agreement was made.
  • The court established that "subject to contract" creates a strong presumption against the existence of a binding contract before a formally executed document.
  • It affirmed that negotiations could proceed and terms be revised without legal consequences until a final contract was completed.

Legal Principles

  • The phrase "subject to contract" clearly signals that parties do not intend to be legally bound until a formal contract is signed.
  • This statement protects negotiating parties from unintended legal obligations that might otherwise arise from preliminary documents or discussions.
  • Exceptions may arise if both parties act in a manner that demonstrates clear intent to be legally bound, despite the existence of the "subject to contract" wording; however, such exceptions are rare and require compelling evidence.
  • Other qualifying phrases (e.g., "subject to details," "subject to survey") lack the same strong legal effect as "subject to contract."
  • The principle remains a central tenet in contract law to determine the existence and timing of legal agreements.

Conclusion

Branca v Cobarro confirms that the use of "subject to contract" prevents the formation of a binding agreement until a final, signed contract is executed, offering clarity and protection for parties engaged in contract negotiations. The decision continues to serve as an important reference for establishing intent and managing legal risks during contractual discussions.

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