Best Efforts or Whim and Fancy Conditions #163
CATEGORY: Legally Speaking
TAGS: Conditional Clause
By Gerry Neely
The subject of conditional offers and their enforceability continues to confound licensees and lawyers alike. The difficulty lies in failing to recognize the distinction between conditional clauses which require the approval of someone other than the purchaser or the vendor, and those conditional clauses, which, as one judge said, are subject only to the "whim or fancy of the purchaser."
Examples of the first category of conditional clauses are those which depend upon approval of say, rezoning or subdivision by the city of ___________or of financing by the Bank of ___________. In each of these examples, it is the decision of a third party which determines whether the condition will be removed. These examples are referred to as the "best efforts" cases because they require each party to do whatever is reasonably necessary on his part to meet the condition. (The best effort rule includes a "subject to sale of purchaser's residence" condition.)
For instance, a purchaser whose offer was subject to financing and who didn't want to complete, was liable for damages to the vendor when he failed to take any steps to see if the financing could have been obtained. Offers which contain these "third party approval conditions" create a contract which neither party can revoke during the period the condition remains open to be removed or waived.
Examples of the second category of conditional clauses are found in a case involving an offer to purchase submitted on behalf of a purchaser by an agent engaged primarily in commercial real estate. The offer was subject to the purchaser's review of all leases, contracts, plans, surveys and the state of title of the lands; a detailed inspection of the building; and the arrangement of financing. Removal of the conditions depended upon the review, inspection and financing being done to the sole satisfaction of the purchaser.
The purchaser removed the condition a few minutes past the deadline, by which time the vendor had given notice of termination.
The purchaser sued for specific performance of the contract and among other arguments advanced, tried to bring the conditions within the "best efforts" cases. The judge rejected this argument because the offer created no agreement which a court could enforce. The reason: there was no way the judge could test whether the purchaser used his best efforts to decide whether he was satisfied with the matters referred to in the conditions.
The vendor was free to revoke his acceptance at any time after the offer was made and before the vendor received notice of the purchaser's removal or waiver of the conditions. The effect of the "whim and fancy" offers is to create an option in favour of the purchaser which is unenforceable unless the agreement is under seal or for consideration. The deposit could not have been consideration for the option because the purchaser was entitled to its return (refer to Column 57 for a discussion of the use of seals or appropriate clauses.)
There are two reasons why it is necessary to know when you are faced with a "whim and fancy" clause. The first reason is the one already mentioned, namely to prevent the vendor from revoking the purchaser's offer before the purchaser has had time to satisfy himself as to whether the condition should be removed or waived. The second is to avoid being sued for having failed to draft a legally enforceable document. (see Column 111.) In case of doubt, seal the contract or provide consideration to the vendor.1
|1.||Kitsilano Enterprises Ltd. and G. and A. Developments Ltd., SCBC Vancouver Registry C885149, Reasons for Judgment, June 22, 1990.|
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