Conditional Clauses #250
CATEGORY: Legally Speaking
TAGS: Contract of Purchase and Sale
By Gerry Neely
Offers to purchase property often contain a condition that the offer is subject to a party obtaining legal advice, usually concerning the title or the terms of the offer. What are the obligations of sellers or buyers for whose benefit this condition is added, and of the lawyers whose opinions are sought?
A lawyer's obligation was examined in a B.C. case involving a condition for the seller's benefit, that legal advice be obtained concerning the enforceability of the offer. The seller's lawyer came to the conclusion that the offer created an unenforceable option. The sellers declined to proceed and the buyer sued for specific performance.
The test was not whether the lawyer's opinion was right or wrong, but whether the lawyer had come to an opinion which he honestly and genuinely believed. The evidence presented by the seller's lawyer included notations of the changes that he would recommend to make the contract enforceable. The judge's decision was that the actions taken by the seller's lawyer met the test of honesty and genuiness and dismissed the buyer's action.
Essentially what this comes down to is whether the lawyer acted in good faith. If it is proven that the lawyer refused to approve a contract, to get a client out of a contract, or for some other reason, then the lawyer is not acting in good faith.
An example of this is where a landlord's lawyer outlined, by letter, the terms the landlord was prepared to accept for a renewal of the tenant's lease. The tenant was asked to have its lawyer prepare and forward the renewal documents if the terms were acceptable. The landlord's lawyer also stated that if the documents were satisfactory they would forward them to the landlord for execution.
The tenant's lawyers complied with this request, but no response was received from the landlord's lawyer, no doubt because the landlord had agreed to sell the property to a purchaser, who intended to occupy the area leased to the tenant. The tenant applied for an order to confirm the validity of the renewal. The judge decided that the lawyer's inaction was evidence of bad faith from which the landlord could not benefit and gave the tenant the order it wanted.
other evidence of a lawyer not acting in good faith can be found in objections made by a lawyer that are "so patently absurd that the court could say that they are ridiculous." A finding of that kind would lead the court to disregard the lack of approval in determining the rights of the parties to the contract.1
What is a buyer's obligation? A Contract of Purchase and Salestated that completion was subject to the buyer's lawyer approvingthe interim agreement and title search to be removed by April 10th. When the lawyer discovered that the home was newly-constructed,he advised them that the terms of the offer were insufficient toprotect them and prepared the additional tenns he felt were needed.
The buyers refused to proceed and the seller sued for the deposit.The seller was unsuccessful, as the judge held that the buyers wereentitled to rely upon the disapproval by their lawyer of theinterimagreement.
The failure of a buyer, when the offer contains a conditionalclause of this nature, to seek legal advice, would result in a judgedeciding that the buyer had waived his right not to complete.
In addition, the judge held that the buyers were under no obligation to renegotiate the contract, to see whether or not the seller would agree with the revisions suggested by the buyer's lawyer. His decision was based upon how the conditional clause was worded. This suggests that if appropriate wording had been added, which required the buyers to put their lawyer's changes to the sellers for consideration, that the judge might have found that there was an obligation to renegotiate.2
In cases where the conditions are not of the "whim and fancy" type of clause, and therefore an offer is created, there is an obligation on the buyer to act reasonably. This applied in a case where engineering, soils and traffic reports, were to be delivered to the buyer for his approval. The court said that the buyer's obligation was to consider the various reports and not to reject them arbitrarily, but only on reasonable specified grounds. One can assume that this conclusion would apply equally to a seller for whose benefit conditional clauses were inserted in a contract.3
|1.||Ledingham McAlhster Homes Ltd. v. Forbes, S. C.B. C., New Westminster Registry, July 10, 1995.|
|2.||Chung v. fim, S. C.B. C., Victoria, BC, January 12, 1984.|
|3.||Tau Holdings Ltd. v. Alderbridge, 60 B.C.L.R., (2nd) 61.|
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