Jun 01, 1983

Due Diligence Irrelevant; Time Is of the Essence #36

Jun 01, 1983

Due Diligence Irrelevant; Time Is of the Essence #36

By Gerry Neely
B.A. LL.B.

A number of decisions in the past few years have emphasized the necessity of recognizing the commercial reality which leads to the formation of the agreements entered into in the real estate industry. As one Court stated, if all interim agreements to purchase were to include all of the details that the defendant argued should have been included, it was highly unlikely that people in the real estate field would ever be able to put a sale together and the entire industry would be in a chaotic mess. The first case which follows may be an indication that this realistic view of the interpretation of a real estate contract may be extended to the realities which occasionally confront the conveyancer completing or attempting to complete the transaction.

The facts as disclosed in the Judgment are clear and simple. The defendant purchaser defaulted on an agreement to purchase a duplex for cash. The vendor sued for specific performance and the purchaser's defense was that the vendor was unable at the time of completion to clear title, which by the terms of the Offer to Purchase she was required to do. The Court found that the Vendor had intended to use part of the defendant's purchase monies to discharge existing encumbrances, and the only reason she was unable to complete and to clear title was because the money to discharge encumbrances was not forthcoming from the purchaser. In those circumstances, the vendor was held not to be in breach of a covenant to deliver clear title, and the defendant was in breach of his agreement when he failed to pay the purchase monies on the date fixed for completion. The plaintiff vendor was awarded specific performance against the defaulting purchaser.

While one would like to see this case established as a precedent, until that is certain it would be preferable when the licensee knows that the vendor is relying upon the purchase monies to clear title, to insert in the interim agreement a clause similar to the following clause:

"The purchaser acknowledges that the vendor's obligation to clear title of all financial charges is subject to the vendor's receipt from the purchaser of the purchase price."

It is important to note that this clause will not be suitable for all circumstances.1

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The second case is an illustration of the strict application of well-understood principles of law concerning the "time is of the essence" clause, with unfortunate consequences for the purchaser.

In this instance, the vendor refused to complete the sale because of the failure of the purchaser to deliver the purchase monies or the transfer on or before the closing date. In the trial which followed, the purchaser lost his action for specific performance when the B.C. Court of Appeal confirmed the trial Judge's findings of fact. Those findings were that (1) time is of the essence; (2) the vendor did not waive that provision; (3) the purchaser was unable to complete because a mortgagee failed to provide a statement of the amount owing under the mortgage, which was to be assumed by the purchaser. The Court found that the purchaser had acted with due diligence but both the trial Judge and the Court of Appeal agreed that was not enough.

This case highlights the understandable practice of waiting until all conditions have been removed and the contract is binding before issuing instructions to the conveyancer to prepare documents. If the time between the removal of conditions and the completion date is short, it would be prudent to suggest to the purchaser that his conveyancer be retained to search title and start to obtain whatever other information may be required, if it appears that the probabilities of the condition being removed are reasonable with the result that the time spent and the cost incurred may not be lost.2

  1. Stapleton v. Molnar et al, S.C.B.C. 1982 B.C.D. Civil 2272-05.
  2. Tarangal v. Symynuk, B.C.C.A. 39 B.C.L.R. 313.

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