A Judge's Guide to Whim and Fancy, or Best Efforts Clauses; Seller Had to Have Actual Knowledge of Default, Not Deemed Knowledge of Agent, to Be Liable Under Contract; Note Re: Legally Speaking 332 #333

Mar 01, 2001

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By Gerry Neely
B.A. LL.B.

In one case, the conditional clause in a Contract of Purchase and Sale required the buyer to satisfy himself as to the tax implications of Canadian/USA/international law upon his purchase of Canadian property. The buyer lived and worked in California, and the purchase monies from an inheritance were to be transferred to Canada from Iran.

This was such a broad area of law, and the buyer's decision to remove or not remove the condition was so subjective, that it was impossible for a judge to determine whether the buyer acted reasonably in not removing the condition. This fell within the whim and fancy type of conditional clause and the judge held that the contract was not enforceable.

The unusual aspect of this case was that the owner sold the property to another person, who took the title unaware of the first contract. The lawsuit was between the disappointed buyer and the titleholder, who kept the property because of the judge's decision.1

In another case, the conditional clause required the buyer to obtain approval for building plans and permit to build. The plans were submitted, then withdrawn, and the condition was not removed. When the seller sued for the deposit, the evidence disclosed that the real reason for the buyer's withdrawal was his acceptance of a job in another city. This condition is a typical best efforts clause, which doesn't depend solely upon a buyer's subjective decision. It is narrow enough in its scope that the factors involved in the buyer's decision not to remove the condition can be examined.2

***

The importance the court attaches to the exact wording of a contract is illustrated in a case involving the sale of a large office building for $12,550,000, and how the addition of one word saved a seller approximately $90,000. The seller covenanted that, to his "present actual knowledge," the office leases were in good standing at the date of the contract and at the date of closing, unless the seller disclosed in writing that a tenant had defaulted before the latter date.

Two weeks prior to closing, the seller's property manager discovered a tenant had vacated without notice, which was a breach of the lease. The seller was not aware of this. The buyer took 14 months to find a new tenant and sued for loss of rent, tenant inducements, and commission totaling approximately $90,000.

Licensees are aware that at common law, knowledge of the agent is deemed to be the knowledge of the principal. Based upon that principle, the judge would have given the buyer what he was seeking, but for the word "actual." It was chosen carefully to distinguish between the knowledge of the property manager/agent, and the knowledge of the seller/principal.

While the buyer lost because he couldn't prove actual knowledge, there was no suggestion that the seller had deliberately absented himself to avoid being told of default. The result would likely have been different if there had been evidence of bad faith.3

***

In Legally Speaking column 332, reference was made to a special resolution that failed, even though the townhouse owners had sufficient votes to obtain the required majority. For the readers who wrote to ask why, a call to one of the lawyers for the parties disclosed a rare instance in this sorry story of leaky condos, where the majority subordinated their self-interest to the wider interest of reducing divisiveness amongst strata owners. Both factions agreed to let a judge decide this issue, and agreed that, instead of the winner obtaining an order for costs against the loser, each would pay its own costs.

  1. Thompson v. Sellyn,SCBC, Vancouver Registry, Reasons for Judgment, February 16, 2000.
  2. Saveheli v. Philip, 33 RPR (3rd) 149.
  3. 535951 BC Ltd v. Penlea Investments Ltd.,6SCBC, Vancouver Registry, Reasons for Judgment, January 8, 2001.

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