Draft Sale and Purchase Agreement (SPA) but Binding Contract
No Signature, Still a Contract
The Court of Appeal decision in Chia Seong Pow v Alexma Corporation Sdn Bhd [2026] CLJU 515 is a significant authority on the formation of contracts in Malaysian property transactions. It addresses the often debated legal issue: whether a binding agreement can arise from negotiations and correspondence despite the absence of a formally executed sale and purchase agreement (SPA).
Background Facts
The dispute concerned two parcels of land in Gombak, Selangor owned by the defendant company. The plaintiff entered into negotiations through a property agent and subsequently through solicitors.
Key developments unfolded as follows:
- The plaintiff agreed to purchase the land for approximately RM5.1 million
- Draft SPAs were exchanged between solicitors
- A land survey revealed that a significant portion of the land was unusable
- The plaintiff proposed a reduced price based on usable land area
- The defendant, through its solicitors, agreed to the revised price of RM4,102,341.00
The agreement on the revised price was clearly communicated via:
- WhatsApp correspondence (“Ok proceed”)
- A formal email confirming acceptance
Following this, the plaintiff’s solicitors prepared the 3rd draft SPA reflecting all agreed terms and forwarded it for execution. However, the defendant failed to sign the agreement and became unresponsive.
Despite repeated reminders and the plaintiff’s readiness to proceed (including payment of the deposit to stakeholders), the transaction did not proceed. The plaintiff then commenced an action seeking specific performance and damages.
Issues Before the Court
The central issue before the Court of Appeal was:
- Whether a legally binding contract had been concluded based on the 3rd draft SPA despite it being unsigned
Subsidiary issues included:
- Whether the defendant’s solicitors had authority to bind the defendant
- Whether subsequent draft agreements negated the existence of a concluded contract
- Whether specific performance remained available given that the land had been sold to a third party
High Court Decision
The High Court dismissed the plaintiff’s claim on the basis that:
- The 3rd draft SPA was not signed
- There were further changes proposed in subsequent drafts
- There was no concluded agreement on essential terms
Although the High Court accepted that the defendant’s solicitors had authority, it held that no binding contract had arisen.
Court of Appeal Decision
The Court of Appeal allowed the appeal and overturned the High Court’s decision.
It held that:
- A binding contract had been concluded
- The absence of a signed SPA did not prevent contractual formation
- All essential terms had been agreed between the parties
However, the court declined to grant specific performance due to the subsequent sale of the land to a third party. Instead, the matter was remitted for assessment of damages.
Legal Analysis
1. Formation of Contract Without Signature
The Court of Appeal reaffirmed that a contract for the sale of land does not necessarily require a formally executed SPA if the essential elements of a contract are present.
The court emphasised that the label “draft” does not negate the existence of a binding agreement where:
- Terms have been negotiated
- Agreement has been clearly communicated
- There is intention to be bound
The 3rd draft SPA merely formalised what had already been agreed.
2. Consensus Ad Idem and Essential Terms
A critical aspect of the judgment is the court’s application of the doctrine of consensus ad idem.
The court found that all essential terms were settled, namely:
- Parties (plaintiff and defendant)
- Property (identified parcels of land)
- Purchase price (revised and agreed)
Once these elements were established, the contract was complete in law.
This aligns with the concept of an “open contract,” where only core terms are required for enforceability.
3. Role and Authority of Solicitors
The defendant attempted to argue that its solicitors lacked authority to accept the revised purchase price.
This argument was rejected.
The Court of Appeal upheld the High Court’s finding that:
- The solicitors had ostensible authority
- Their communications (WhatsApp and email) bound the defendant
This is a crucial point for practice: representations made by solicitors during negotiations can create binding legal consequences.
4. Effect of Subsequent Draft Agreements
The defendant relied on the existence of the 4th and 5th draft SPAs to argue that negotiations were ongoing and incomplete.
The Court of Appeal rejected this argument and clarified that:
- Subsequent drafts were merely attempts to vary an already concluded agreement
- They did not undo the binding effect of the 3rd draft SPA
This distinction is important: post-agreement variations do not negate an earlier concluded contract unless expressly agreed.
5. Intention to be Bound
The court examined whether the parties intended to be legally bound only upon execution of a formal SPA.
It found no such intention.
Instead, the conduct of the parties indicated:
- Immediate agreement on terms
- Preparation of the SPA as a formality
This distinguishes the case from situations where parties expressly stipulate that no contract exists until formal execution.
6. Specific Performance vs Damages
Although the plaintiff succeeded in establishing a binding contract, specific performance was no longer available.
This was because:
- The land had already been sold to a third party during the trial
As a result:
- Specific performance became impossible
- The appropriate remedy shifted to damages
This highlights a practical risk in property litigation: delay can render equitable relief ineffective.
7. Refusal to Lift the Corporate Veil
The plaintiff sought to hold the company’s director personally liable by lifting the corporate veil.
The Court of Appeal refused on procedural and substantive grounds:
- The director was not named as a party
- He was not given an opportunity to be heard
- The issue was not pleaded or argued at trial
The court reaffirmed the fundamental principle of natural justice that a person must be heard before liability is imposed.
8. Exemplary Damages
The plaintiff also sought exemplary damages.
The court did not grant such relief at this stage and indicated that:
- The issue may be more appropriately dealt with in separate proceedings
- The threshold for exemplary damages remains high
Key Legal Principles
This case establishes several important principles:
- A binding contract for the sale of land can arise without a signed SPA
- Agreement on essential terms (parties, property, price) may be sufficient
- Communications via solicitors, including informal ones, can create binding obligations
- Subsequent negotiations do not negate an already concluded contract
- Specific performance may be denied where the subject matter is no longer available
- Corporate veil cannot be lifted without proper pleading and procedural fairness
Risk Management (Clients)
Based on the latest case law, attention should be given to the followings:-
- Informal agreements can become legally binding
- Silence or failure to respond may expose them to liability
- Once essential terms are agreed, withdrawal may amount to breach
Conclusion
The Court of Appeal’s decision underscores a fundamental principle of contract law: substance prevails over form. A contract is formed when parties agree on essential terms with the intention to be bound, regardless of whether a formal document is signed.
In this case, the 3rd draft SPA represented a concluded agreement, and the defendant’s refusal to proceed constituted a breach. While specific performance was no longer available, the plaintiff retained the right to damages (subject to proper procedural compliance).
Written on: 27th March 2026
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Disclaimer: The above proposition is subject to actual facts and circumstances and shall never be referred as the actual law without seeking legal advice. Consult us for more information!