“Best Efforts” Cases #9

By Gerry Neely
B.A. LL.B.

Very occasionally a prospective purchaser for whom an offer to purchase is being prepared, asks for the insertion of a condition in the agreement such as "subject to financing..." because he is not entirely certain whether he wants to buy the property. The reasoning of course is that if he decides that he doesn't want it, the condition precedent prevents the contract from becoming binding, even though financing would be available. This stratagem may not be used as much or at least will be used more carefully, if knowledge of two decisions of the Supreme Court of British Columbia becomes more widespread.

In one, prospective purchasers sought the return of a $50,000.00 deposit paid under a letter of agreement between the parties. The deposit was paid on condition that it would be refunded should the proposed sale fail "due to no fault" of the purchasers. They claimed the sale fell through because they could not obtain financing, and that this was due to no fault on their part. The Court interpreted "fault" as meaning that the purchasers had to use their "best efforts" to meet all of the conditions which would have enabled the sale to be completed. The onus was on the purchasers to show why their efforts to obtain financing had failed. Their own evidence of their attempt to obtain financing through the Federal Business Development Bank satisfied the Court that their failure to obtain financing was due to their failure to present an unusual proposition in a business-like way.¹

The second case dealt with a complicated agreement involving a land assembly by a developer for the expansion of an existing shopping centre owned by the developer. There were a number of conditions in the agreement, including obtaining zoning approval, a building permit and final approvals from the municipality and Province for the expansion of the shopping centre by July 31st, 1979. Failing satisfaction of these conditions, the land developer had the option of declaring the agreement null and void. In mid-April 1979, the land developer decided to abandon the idea of the expansion, primarily because of his difficulty in finding an anchor tenant. That had not been one of the conditions to which the agreement was subject. In August, the land developer declared the agreement null and void and the vendor sued for specific performance or in the alternative, for damages.

The vendor was successful, the Court holding that there was an implied obligation on the part of the land developer to use its "best efforts" to bring about the fulfillment of the conditions in the agreement of purchase and sale. By failing to take any bona fide action from mid-April on, to bring about the proposed development, the land developer breached this implied obligation. The agreement was subject to the purchase by the land developer of properties from two owners of lands other than the Vendor who was sued. The Court found that the land developer had not made any concerted effort to purchase those properties. It held that the land developer could not rely on its own failure to use its best efforts to purchase, as an excuse for non-fulfillment of its obligation.²

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