Satisfactory Financing #121

By Gerry Neely
B.A. LL.B

Relief is in sight. This column is about a B.C. Court of Appeal decision which will make the addition of a conditional financing clause less of a hazard to the enforceability of an offer to purchase. Column 110 reported a B.C. Supreme Court decision which held that an offer to purchase was unenforceable because the conditional financing clause was too uncertain to permit the Judge to interpret what it meant. The offer in that case was subject to the purchaser obtaining "satisfactory personal financing."

The offer to purchase in the Court of Appeal decision contained a clause which made it subject to "Purchaser being able to arrange satisfactory financing on or before...." The purchaser claimed after the period for obtaining financing had expired, that he could not obtain financing satisfactory to himself. He then made a lower cash offer to purchase the home. The vendor sued the purchaser, arguing not only that the purchaser didn't try hard enough, but had never intended to try hard enough.

From the perspective of the vendor and licensees, the Court of Appeal took an encouraging approach to the interpretation of this clause. It stated "it is not the function of the courts to set interim agreements aside for uncertainty because they contain a clause which is not precisely expressed. If such a clause has an ascertainable meaning, then the courts should strive to find it. As long as an agreement is not being constructed by the Court, to the surprise of the parties, or at least one of them, the Court should try to retain and give effect to the agreement that the parties have created for themselves."

The Court of Appeal found that there was an obligation on the part of the purchaser to use his best efforts to obtain financing that was satisfactory to him, and that he was not to withhold his satisfaction unreasonably. The Court of Appeal set the test to be met by future judges in interpreting this clause, by saying that it meant "satisfactory to a reasonable person with all the subjective but reasonable standards of the particular purchaser."

No reference was made in the reasons for judgment to the many other decisions such as "satisfactory personal financing" or "suitable financing", or "satisfactory mortgage", all of which have found to be too uncertain to create a binding contract. Therefore only the clause contained in paragraph 2. should be used where the purchaser is uncertain as to which mortgage terms he may want or be able to obtain.

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