Vendor's Problem With Clearing Title #55

Jun 01, 1984

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By Gerry Neely
B.A. LL.B.

The standard Interim Agreement form contains a clause requiring the vendor to deliver a title clear of the vendor's financial charges. Generally, the vendor depends upon the receipt of the purchase monies to do this. In all instances where we have a willing vendor and purchaser, cooperation between the conveyancers acting for both parties is usually sufficient to enable the vendor to use the purchaser's money to pay off the mortgages against title. However, where one party wants out of the deal, the vendor's failure to be able to deliver clear title at the date fixed for completion is always advanced as a defense.

Column #36 discussed a Supreme Court of British Columbia case in which a purchaser refused to complete and attempted to rely upon the vendor's inability to clear title as a defense. The court adopted a realistic view of the intentions of the parties and held that while the vendor was willing to complete, her inability to do so within the terms of the Interim Agreement arose entirely from the purchaser's failure to pay to her the purchase monies. The vendor was held to be entitled to specific performance notwithstanding the vendor's failure to deliver a title clear of all financial charges. That case seemed to offer some hope for conveyancers and licencees, but now another decision of the Supreme Court of British Columbia has gone in the opposite direction.

In this most recent case, the vendor attempted to discharge its mortgages by having its solicitor give his undertaking to the purchaser's solicitor, to clear title upon receipt of the purchaser's monies, and, if that proved to be impossible, to return the purchase monies. The purchaser's solicitor, no doubt acting upon his client's instructions, did nothing. The Chief Justice held that it was the vendor's responsibility to clear title and the purchaser was not under an obligation to accept the undertaking given by the vendor's solicitor. The ultimate failure to complete was the responsibility of the vendor and the purchaser was entitled to the return of his deposit.

Since we now have two decisions with opposite results upon substantially the same set of facts, there are two recommendations that one can make to licencees. The first is to include the clause referred to in Column #36, which is repeated below, or one similar to it depending upon the circumstances:

"The purchaser acknowledges that the vendor's obligation to clear title of all financial charges is subject to the vendor's receipt from the purchaser of the purchase price. (It is important to note that this clause will not be suitable for all circumstances. In addition, it does not provide a mechanism for settling how both parties can protect themselves - that is still left to their respective conveyancers to decide.)"

It has been suggested, as well, that there could be added to this clause the following sentence:

"The purchaser agrees to accept the undertaking of a solicitor or a notary acting for the vendor, to clear the title subsequent to completion."

I think that this would be an appropriate sentence to add where the parties know the conveyancers who will be acting in the transaction and know that the conveyancers are prepared to accept undertakings from each other. Otherwise, I would not recommend its use because a decision as to the extent of an undertaking and whether or not to accept it, should not be imposed by the parties upon the conveyancers.

The second recommendation to the licencee is to make the vendor aware of the necessity of immediately employing a conveyancer who can initiate the steps required to make arrangements cooperatively to obtain the release of existing financial charges. The vendor should also be made aware that he may have to arrange interim financing to clear the existing mortgages off title on the date of completion, if his conveyancer can't obtain an agreement to receive funds upon his undertaking to discharge the financial charges.

  1. Grewall Farms Ltd. v. Rothe,S.C.B.C., 48 B.C.L.R. 202.

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