Clauses in the Offer to Purchase #8

Aug 01, 1981

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By Gerry Neely
B.A. LL.B.

The Offer to Purchase used by the Multiple Listing Service of the Victoria Real Estate Board contains the following clauses:" . . . Balance of cash payment to be deposited in trust by the purchaser by 5 p.m. on ____________,19__. Balance of cash payment to be made to the Vendor and sale completed by 5 p.m. on ____________,19__."

Two additional clauses state when possession is to be given to the purchaser and when adjustments are to be made. In addition, the following clause is contained in the Offer to Purchase:" . . . It is understood that time shall be of the essence hereof, and unless the balance of the cash payment is paid and a formal agreement entered into within the time mentioned to pay the balance, the vendor may (at his option) cancel this agreement, and in such event the amount paid by the purchaser shall be absolutely forfeited to the vendor as liquidated damages. . . "

There has been a difference of opinion as to the legal significance of the clause which calls for the cash payment to be deposited in trust by a certain date. Generally, the date is fixed a few days prior to the date when the cash payment is to be made to the vendor. This allowed a few days for registration, and gave the Vendor assurances that the Purchaser was able to complete, to enable the Vendor to conclude the arrangements necessary to give vacant possession to the Purchaser. The question which had been unanswered until recently, was whether the failure of the purchaser to deposit funds in trust by a certain date entitled the vendor to repudiate the contract. The argument in support of repudiation was that the "time is of the essence" clause, applied to all dates in the offer to purchase which required either the Vendor or the Purchaser to take action within the time stated in the Offer to Purchase.

That point has been settled, insofar as it is founded upon clauses identical to those noted above. In the case in question, monies to be deposited in trust by 5 p.m. on January 26th, 1981, were not received until January 28th, 1981. By the time fixed for completion, which was 5 p.m. on January 29th,1981, the monies were available to be paid to the vendor. In a rising market, the vendor repudiated the contract. The purchaser sued for specific performance and the solicitor for the purchaser argued that the clause requiring the balance of the cash to be deposited in trust by 5 p. m. on January 26th, 1981, was a warranty, rather than a condition. If it was a warranty, its breach would entitle the vendor to damages; but if it was a condition, its breach would entitle the vendor either to repudiate the agreement or to claim damages.

In reviewing the offer to purchase, Mr. Justice Hinds found that the essential ingredients of the sale of the townhouse, were all clearly specified. He contrasted these essential ingredients with the "payment into trust" clause and concluded it was more in the nature of a representation of the intention of the purchaser, than a condition that went to the root of the contract. He held that it was not intended to be a fundamental term of the contract, and therefore was a warranty and not a condition. Its breach by the purchaser did not entitle the vendor to repudiate the contract.

In addition he found that the "time is of the essence" clause did not apply to the payment into trust clauses. He held that it referred to two matters only, the payment of the balance of cash and entering into a formal agreement.

The result of this case is that the failure by the purchaser to deposit funds in trust when required to do so, gives the vendor only a right to claim damages. If monies are paid to the vendor upon the completion date it is unlikely that the Vendor will have a claim for damages, although one can visualize expenses incurred by a Vendor who hesitated to make final arrangements because the purchaser's funds had not been paid into trust on time.

  1. Day v. Roach,29 B.C.L.R. 107.

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