Director of a Company - Signing Officer and Guarantor, Sign Twice; Time is of the Essence Clause #347

May 01, 2002

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By Gerry Neely
B.A. LL.B

A cautionary note to licensees preparing a contract for the purchase of property by a limited company, where it is intended the company's performance of the contract is to be guaranteed by the individual who also signs on behalf of the company. The source of this warning is a BC Court of Appeal (BCCA) decision involving a contract to provide credit to a limited company.

The application for credit ended with the statement that, "We are personally responsible and personally liable for . . ." The contract was signed by two directors whose titles followed their signatures. When the company defaulted, the credit company sued the directors. It lost when the BCCA held that the signatures could not be effective simultaneously as signing officers of the company and as personal guarantors. Make sure the individual signs twice.1


* * *

This decision was referred to in a case where a buyer sued for the return of a $50,000 deposit. Even though the contract between the sellers and the buyer expressly stated that the named director was to be personally liable, he avoided liability because he had only signed in his capacity as a director of the company.

The case is interesting for another reason: the problem created when an extension of time to complete failed to state that the "time is of the essence" clause in the Contract of Purchase and Sale remained in effect.

The sellers were dependent upon the sale proceeds for their completion of a condominium under construction. Both their sale and purchase were to be completed on the same date. The parties agreed that the sellers could extend the date for completion, if they were unable to obtain possession of the condominium they were purchasing because of a lack of an occupancy permit. One oral extension was given but no new date was set. A second written extension fixed a new date and confirmed that all other terms of the contract remained the same.

Unfortunately, the conveyancing documents were delivered by a courier one day late. The issue was whether the "time is of the essence" clause continued to bind the parties. If the statement in the written extension preserved it, then the buyer was entitled to terminate the contract. However, if it had been waived when the original completion date passed, the buyer would have to give notice to the sellers that, if they failed to complete on time, the contract was at an end.

The buyer lost his claim for the deposit when the judge held the notice by the sellers (that their condominium would not be finished by the original completion date) was a waiver of the " time is of the essence" clause.

These are difficult cases because judges often are forced to make fine distinctions between the facts in the cases they are deciding and in the cases put forward as precedents, which makes it difficult to predict the results. Litigation can be minimized, if not avoided, by including in amending agreements that, "Time is of the essence remains in effect".2

  1. Unisource Canada Inc. v. Bray, B.C.C.A., Vancouver Registry, Reasons for Judgment, January 28, 1988.
  2. Ambassador Industries Ltd. v. Kastens, S.C.B.C., New Westminster Registry, March 30, 2001.



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