Financing Clauses - "Satisfactory Personal Financing" - Uncertain #110

Oct 01, 1987



By Gerry Neely

Adam B. Able, the affable agent/owner of the Point Grey Wreck Beach Real Estate Agency, was in his office balancing his accounts payable against the sales awaiting completion, when a dark cloud entered his office. Under it stood his newest salesman, Mr. Nester Neofite, carrying an important letter, wearing a worried look and little else. To be precise, nothing else but his Adidas. When Adam assigned the Wreck Beach territory to Nester, he had been reluctant to agree to Nester's request to solicit listings in the nude. Nester insisted, arguing that no clothes gave him an edge on the competition. Adam had to admit that once Nester started worrying less about where to put his hands and more about where to carry his pen, business had been remarkable. The only problem he had created arose from his enthusiastic inexperience which led him to list a great little business that promised 100% return in just 3 summer months with splendid franchise opportunities. Adam had to cancel it when he discovered from reading a police report in the Province that the owner of The Little Grass Shack at Wreck Beach was selling more than sun tan lotion, beach balls and thongs.

The letter Nester carried was from a lawyer written on behalf of a purchaser found by Nester, to advise him that the purchaser wanted his $20,000.00 deposit refunded. "Nester," said Adam, "this is a serious matter. Let's arrange to meet with my solicitor, Noel."

The next day when Noel finished reading the offer to purchase and letter, he turned to Nester. "This is a straightforward offer containing only one problem for you, and this is the condition, which reads, 'This offer is subject to the purchaser's obtaining satisfactory personal financing, by May 31st, 1984'.1 Tell me, Nester, a little bit of the background." "Well," said Nester, "the purchaser wanted an inspection and needed some financing so I told him that we would add this condition to give him an out, as it were. A friend of his who is taking a night school course on house construction convinced him that there were some problems with the house and he then told the mortgage company not to proceed further because he had changed his mind."

Noel turned to Adam and said, "The main problem is whether or not this clause is sufficiently certain to enable a Court to interpret what it means. In an English case where the condition was subject to the purchaser obtaining a satisfactory mortgage, the Court said that the concept was too indefinite to give the phrase any practical meaning. The Judge said that it might have been possible to bring forward evidence to establish what would be a usual or reasonable rate of interest or the terms of the mortgage but the lack of the loan amount and the terms of repayment meant that the Court could not interpret the clause with any certainty at all.

"Two judges of the Supreme Court of British Columbia in separate cases followed this English case to hold that financing clauses allowing the purchaser to obtain "a satisfactory mortgage'' or "suitable mortgage'' were too uncertain to form a binding contract of sale. While a third decision, which was of a County Court judge interpreting a clause containing the words "suitable financing", was in favour of certainty, the lawyer who is asking for the return of the $20,000.00 deposit has two Supreme Court of British Columbia decisions supporting his demand. I'm afraid you will either have to return the deposit with the vendor's consent, or pay it into court without that consent."

"But," said Adam, "that's not fair. The purchaser did not use his best efforts to find the financing, but backed out because he didn't like the results of the inspection. Surely, he can't rely on his own default to keep the deposit." "That," said Noel, "is an argument that was rejected in the most recent case, on the basis that because of the uncertainty, there was no contract at all."

"And Nester," said Noel, "I'd suggest you refresh your memory concerning financing clauses by looking at the Clauses and Phrases book published by the Vancouver Board, or if you haven't that, those found in the Professional Standards Handbook. In addition, it would have been safer to have inserted a condition requiring an inspection, rather than hiding it within the financing clause."

"There is one other point of concern about the offer, and that is that the wording of the clause makes it more of an option than an offer, but you already have information about that, Adam, which you can discuss with Nester."2 (to be continued)

  1. Pietrobon v. McIntyre, S.C.B.C., 15 B.C.L.R. (2d) 350.
  2. Legally Speaking Columns No. 57 and 63.

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