Removal of Conditions and the Law and Equity Act #17

Feb 01, 1982

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By Gerry Neely
B.A. LL.B.

An offer to purchase the assets of a hunting and fishing lodge, was subject to a number of conditions, one of which was the following: "Subject to obtaining financing, provided that this subject clause shall be removed on November 30th, 1975." It appears from the decision of the Supreme Court of British Columbia given in 1977 that November 30th passed without either the vendor or the purchaser or their solicitors discussing this clause. The vendor carried on with the arrangements for the completion of the sale after that date, but then repudiated. It was not until the Writ for specific performance was issued that the failure of the purchaser to give formal notice prior to November 30th that financing had not been obtained, was raised as a defence. The purchaser was successful in obtaining specific performance and the appeal by the vendor of that decision was dismissed by the Court of Appeal in 1981.

Both the Supreme Court British Columbia and the Court of Appeal were asked to determine the answer to the following question, as a matter of law:

Was the failure of the buyer to advise the seller prior to November 30th, 1975, that financing had been obtained, a condition precedent to the agreement, the non-fulfillment of which rendered the contract void?

The Supreme Court held that since the financing had been obtained, that part of the condition precedent had been met. The second part of the condition, which was its removal by November 30th, 1975, was held to have been waived by the vendor's conduct in proceeding toward completion even though no advice as to the removal of the condition was given on or before November 30th, 1975. It was on the basis of these arguments that specific performance was granted to the purchaser. The Court of Appeal reached the same conclusion but on different reasoning, which is repeated below:

"The interpretation which I put on the clause is that unless the purchaser gave notice before 30th November, 1975, that he was unable to arrange financing, the clause was removed from the agreement and the purchaser was bound to complete."

This decision has been followed in a case where the prospective purchaser sued for damages arising from the refusal of a vendor to comply with the terms of an offer to purchase which contained the following "subject to" clause:

"Subject to purchaser arranging a first mortgage of $90,000.00 at 13 1/2% with payments based on a twenty five year amortization by September 22/80."

The purchaser was unable to obtain financing but didn't care, having resold the property in the buoyant market of late 1980 for cash and a gross profit of $12,000.00. The question before the Court was whether the purchaser was compelled by law to give notice that financing had been arranged in order to keep the contract alive. The answer was "no". On the contrary, if the purchaser intended to rely on the condition precedent to prevent the contract from becoming binding, she had to give notice prior to the date set in the offer to purchase, that financing was unavailable.

These decisions may have unfortunate consequences for a purchaser or vendor who fails to notify the other party in time, of an inability to satisfy the condition inserted in the agreement for that party's benefit. He will be held to be bound by the contract even though, for example, his failure to obtain financing will probably render the purchase impossible and expose the purchaser to an action for specific performance or damages. One way to avoid this would be through the use of the following clause:

"Subject to purchaser obtaining financing. The vendor acknowledges that this condition is solely for the benefit of the purchaser and unless the purchaser waives fulfillment of it, this agreement shall be void if the purchaser is unable to obtain financing satisfactory to it, on or before November 30th, 1975."

This will accomplish several purposes. It avoids the argument that the condition is for the benefit of the vendor as well as the purchaser, a fact which if it existed, eliminates the purchaser's unilateral right given by Section 49 of the Law and Equity Act, to waive compliance with the condition. In addition, it avoids the problem of giving notice and the concern as to when that notice was received by the vendor. Finally, it gives the purchaser to and including the last day to obtain satisfactory financing.

Since this clause will not cover every circumstance, it still is very important for the licencee to advise the other party as to whether or not a condition has been met, waived or remains unfulfilled. In this connection, a review of Section E, pages 5 to 7 inclusive, of the Professional Standards Handbook issued by the Real Estate Council would be worth undertaking.

  1. Sky Ranches Limited v. Nelson et al, 30 B.C.L.R. 162 (Court of Appeal) 4 B.C.L.R. 97 (Supreme Court of British Columbia).
  2. McNabb v. Smith et al,30 B.C.L.R. 37.

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