Contract Fundamentals 101 #425

The recent BC Supreme Court decision in Bryjen Holdings Co. v. Pug Investments Ltd. is a refresher on contract fundamentals.¹

The property was commercial.

The Seller and Buyer were both small business corporations operated by married couples, who, in each case, were the principals of their respective companies. Even though the Seller and Buyer were individual corporate entities, for simplicity, I refer to the respective principals as the sellers or buyers. When referring only to the corporate seller or buyer, I capitalize it as “Seller” or “Buyer,” as the case may be.

The Seller’s title carried a relatively new RBC mortgage with an outstanding balance of $2.45 million and a significant prepayment penalty. The sellers had personally guaranteed the corporate Seller's obligations under the mortgage. The mortgage prohibited the sellers from transferring any rights under the mortgage without RBC’s consent.

In August 2005, on behalf of the corporate Buyer, the buyer husband (who was a licensee) and his wife met with the sellers to talk about buying the property. During the meeting, the licensee produced an offer to purchase, which he had already prepared in the name of the Buyer. After the seller husband made some changes to the offer, both he and the licensee signed it.

The offer price was $4.45 million, with a $60,000 deposit to be paid upon removal of all subjects. The balance of $4.39 million was payable by cash or solicitor’s certified trust cheque at closing. The offer required the Seller to deliver clear title, with certain exceptions, in registerable form.

The offer contained various conditions for the buyers’ benefit, including subject clauses for satisfactory financing and for the Buyer’s review of leases and other documents to be supplied by the Seller. It also contained a Norfolk Aikens clause, which is required where a buyer relies on new mortgage financing to purchase the property.

When the sellers didn’t deliver certain documents, the buyers claimed breach of contract and sued for specific performance.

At trial, the licensee, on behalf of the buyers, described a deal quite different from the offer signed by the parties in August. For instance, he said the buyers didn’t have to pay any more than $600,000 in cash. He testified the contract permitted the buyers to assume the corporate Seller’s RBC mortgage of $2.45 million, and that the Seller would loan the buyers the remaining $1.4 million under a vendor take-back mortgage, possibly at 6.5 per cent.

Alternatively, the licensee claimed the buyers would purchase under an agreement for sale. If so, the corporate Seller would continue both as registered owner and as borrower under the RBC mortgage, until the buyers paid the entire $4.45 million purchase price. In another purchase alternative described by the licensee, the buyers would pay off the RBC mortgage and the remaining $1.4 million over some unspecified term.

The court held that, while the principals discussed various ways to help the buyers purchase the property, the evidence failed to prove a contract. Virtually every important feature of the contract described by the licensee, for the buyers, was either absent from the written offer, or inconsistent with it. Plus, the offer lacked clear financing arrangements because the parties never reached agreement on how the buyers would finance the purchase.

This case reminds us all that, in a real estate deal, the written document must accurately record the entire agreement. The failure to accurately and completely record the deal may leave a party unable to prove that there is a contract. Every important feature must also be certain, including financing arrangements.

1.

Bryjen Holdings Co. v. Pug Investments Ltd., 2008 BCSC 1152, [2008] B.C.J. No. 1615.

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