Offer or Option – Chapter 2 #63
CATEGORY: Legally Speaking
TAGS: Breach of Contract Conditions Precedent Contract of Purchase and Sale Court of Appeal Liability
By Gerry Neely
Column No. 57 discussed at length the problem of deciding whether a condition in an offer to purchase is not what is commonly referred to as a true condition precedent, but rather creates an option which must either be under seal or for which consideration must be given to prevent the vendor from withdrawing his acceptance of the purchaser's offer before the purchaser had the opportunity of removing the condition precedent. Clauses which have been held to create an option are those which depend upon a decision to be made by the purchaser rather than by a third party. Examples of this type of condition were referred to in Column #57 but they include conditions in which the purchaser reserves to himself the right to approve the premises, or chattels, or the financial statements. Two cases, one of which is under appeal, shed a little more judicial light on two commonly used clauses.
In one case, the offer to purchase stated that the transaction was "subject to purchaser's lawyer approving interim agreement and title search, to be removed on or before. . .". The purchaser submitted the offer to his lawyer on the first working day he could. As a result of his investigations, his solicitor did not approve the offer and concluded that some additional safeguards were needed before the purchaser could complete. The purchaser decided not to proceed and advised the vendor's agent accordingly. The vendor sued for the breach of contract. The judge's examination of the facts indicated that he considered this clause to be a true condition precedent. In part the significance of this case is that the judge stated that since the condition was inserted for the benefit of the purchaser, then the purchaser had to act upon it by submitting the offer to his solicitor. If he had done nothing at all, then the vendor might have been able to argue that the purchaser had waived his rights and the vendor might have been successful in his action for damages for breach of contract.1
The second case is the one under appeal. In that case, the purchaser's offer contained a condition that the purchaser's obligation to complete was subject to the purchaser being able to sell his own residence on or before a stated period of time. Pending the sale of the purchaser's home, the vendor retained the right to sell his home, with the result that the vendor and purchaser entered into a 72-hour clause agreement. When the purchaser still had approximately one month left to find a buyer for his home, the vendor changed his mind and notified the purchaser that the deal was cancelled. The purchaser refused to accept the cancellation and, when he found a buyer within the time, removed the subject clause. When the vendor refused to complete, the purchaser sued for specific performance.
The vendor argued that the contract was not a binding contract but it created merely a form of option. Since the contract was not signed under seal and since the deposit of $1,000.00 would be returned to the purchaser if the transaction collapsed, there was no consideration for the option. Therefore, the vendor argued that he was entitled to cancel the agreement. The judge looked at the facts, including the use of the words "condition precedent" as they would have appeared in the 72-hour clause, as well as the conduct of the parties which he found indicated that they intended to be bound by the contract, to come to the conclusion that the subject to clause did not create an option and that the contract was binding upon the vendor. The results of this case in establishing that a subject to clause of this kind creates a true condition precedent, would have been more certain if the judge had made his decision solely upon an interpretation of the offer to purchase, rather than upon that and the conduct of the parties. Perhaps the appeal will clarify that question.2
In the meantime, it would appear that these two subject to clauses can be used without either a seal or a separate consideration being required.
|1.||Chung v. Jim, S.C.B.C. 1984 B.C.D. Civil 2228-03.|
|2.||Waibe v. Bobsien, C84184 New Westminster Registry.|
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