Interest Clauses – Uncertain and Unenforceable #100

By Gerry Neely
B.A. LL.B.

What do the following three clauses have in common?

"Vendors to carry $90,000.00 by way of a first mortgage payable at $950.00 per month, principal and 12% interest included with a three-year interest adjustment clause. This mortgage to be open and purchaser to have privilege to pay out in full or part at any time without notice, bonus or penalty.''¹

"A mortgage of $32,000.00 to be paid at ten and one half percent interest for a two year mortgage amortised over twenty years Plus a two year additional mortgage option (same) Payment to start on January 4th, 1984."²

"Subject to purchaser arranging a first mortgage of $20,000.00 at current interest rates by June 29, '83."³

Each clause was contained in an offer to purchase. Clauses 1 and 3 were prepared by licensees, while Clause 2 was prepared by the owner of the property. In each instance, the purchaser refused to complete and the vendor sued for specific performance or damages.

In the first case, it was clear that the parties intended that the rate of interest was to be examined every three years to determine whether it should be adjusted. However, no mechanism was provided by which the interest rate would be altered. Since the clause dealing with interest, an essential term, was too vague to be enforceable, the interim agreement was held to be void for uncertainty. Since there was no agreement, there was no commission payable to the agent.

In the second case, the clause did not set out how interest was to be calculated or whether the mortgage payments were to be made monthly or less frequently. Once again, the absence of these essential terms made the agreement uncertain and unenforceable.

The third case, for some, will seem to have the wrong result. The purchaser was able to obtain approval for the mortgage, but only with her husband's guarantee, which he initially agreed to give. He withdrew as a guarantor, with the result that funds were not available on June 29th. The vendor's action for specific performance or damages was dismissed for two reasons. The first was that the clause referred to current interest rates, and the judge was unable to understand how there could be two current interest rates in existence at the same time. He was not satisfied with the entry into evidence of a loan application by the wife that did set out two different rates of interest, one a floating rate and the other a fixed rate.

The second reason was that the subject clause had not been satisfied. Apparently there wasn't evidence available as to why the husband changed his mind about acting as a guarantor. The judgment doesn't indicate whether the "best effort" argument was advanced.

The judge also raised a point which would not have occurred to most of us, and that is whether the obligation on the part of the purchaser to arrange a first mortgage by June 29, '83, meant only that the mortgage had to be approved by that date, or that it meant that the money had to be available on that date. There probably is no difference, given that once approval is given, most mortgagees would prefer to advance funds early rather than later.

The Reasons for Judgment do not state whether the closing date was June 29th, '83, or later. We have assumed, and I suggest that it is a reasonable assumption, that a purchaser's obligation to arrange or to obtain or to have made available to him a first mortgage by a certain date is satisfied if approval is obtained by that date. The purchaser's obligation to pay funds to the vendor does not arise, except in rare circumstances, until the closing date.

	1.	Damer et al v. Krack,S.C.B.C. No. C843673, Vancouver Registry.
	2.	Cooper v. Hawes, No. SC 59-1984, Rossland Registry.
	3.	Knapp et al v. Tavernier et alS.C.B.C. No. C836899, Vancouver Registry.

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