Contingent Agreements

1
Contingent Agreements

• Contracts

2
Introduction

• When you buy a house, how do you do it? Very few
  people have enough money to just buy a house.
  But, banks will not just lend you money on your
  promise to buy a house with it. They want to see
  the house you are going to buy before you buy it.
  But the seller wants to know you have the money
  before they will sell the house. In order to get
  around the problem, you sign a contract to buy
  the house before you get the money. But the
  contract is contingent upon you arranging
  satisfactory financing for it. If you cannot get
  the money, the contract is at an end, and the
  seller does not have to sell the buyer does not
  have to buy.
• Examples of contingency
• Planning Act approval
• Zoning approval
• Statute Manchester Diocesan

3
Introduction

• Why not the word condition?
• The cases use it a lot
• Condition precedent
• Condition subsequent
• Legal categories of contingencies
• Condition precedent to formation
• Condition precedent to performance
• Car example
• I will buy your car if I like the colour
• I will buy your car if it has less than 100,000
  kilometers on it.

4
Introduction (contd)

• A focus on the intention of the parties
• Objective v. subjective
• Can you figure out what the parties agreed to?
• Assuming that you can find a contract, that is,
  the contingency delays performance and not
  formation, can you not complete the contingency
  and still go ahead?
• Answer It depends

5
Is A Contingent Agreement A Contract?

• Weibe v. Bobsien
• 1984 British Columbia Supreme Court
• Facts
• The plaintiff wants to buy the defendants home,
  but the purchase was only to go ahead if the
  plaintiff was able to sell his home.
• The sale was subject to the plaintiff selling his
  Port Moody residence on or before August 18,
  1984.
• Pending the sale of the plaintiffs home, the
  defendant retained the right to sell the property
  to another purchaser if one could be found.

6
Is A Contingent Agreement A Contract? (contd)

• Weibe v. Bobsien (contd)
• Facts (contd)
• In the event the defendant received a bona fide
  offer from a third party, the plaintiff then had
  3 days to remove the condition precedent from
  the interim agreement dated June 22, 1984, so
  that it was no longer subject to the sale of the
  plaintiff 's home (paragraph 5).

7
Is A Contingent Agreement A Contract? (contd)

• Weibe v. Bobsien (contd)
• Facts (contd)
• If the deal does not go ahead due to the
  inability of the plaintiff to sell his home, the
  deposit goes back (paragraph 6).
• The defendant cancels the interim agreement
  (paragraph 7)
• On the last possible day, the plaintiff got a
  purchaser, for 165,000 (paragraph 8)
• The defendant refuses to close (paragraph 9)

8
Is A Contingent Agreement A Contract? (contd)

• Weibe v. Bobsien (contd)
• Issues
• Communication of acceptance Communication to
  agent is good enough
• Is the interim agreement a contract?
• Consideration
• The deposit is irrelevant either way
• Option v. complete contract
• Use of condition precedent
• prevents the creation of a contract, or it
• merely suspends performance of some or all of the
  obligation set out in the contract until the
  condition is met (paras. 17-18).

9
Is A Contingent Agreement A Contract? (contd)

• Weibe v. Bobsien (contd)
• Judgment
• Aberfoyle Plantations Ltd. v. Cheng, 1960 A.C.
  115 (P.C.), contains a contingency that the
  purchase is conditional on the vendor obtaining
  ... a renewal of the leases (para. 21).
• Black Gavin Co. Ltd. v. Cheung et al. subject
  to my inspection of and approval of premises and
  chattels, subject to my approval of the financial
  statements, and subject to me increasing present
  2nd mortgage by 140,000 (para. 22).

10
Is A Contingent Agreement A Contract? (contd)

• Weibe v. Bobsien (contd)
• Judgment (contd)
• Murray McDermid Holdings Ltd. v. Thater The
  interim agreement between the parties stated that
  the plaintiff company's offer to purchase was
  subject to the approval of the company
  president on or before a certain date.
• Corpus Juris Secundum
• A condition precedent may relate to the binding
  effect of an agreement or to the duty to perform
  an existing contract. The existence of such a
  condition depends upon the intent of the parties
  as gathered from the words they have employed,
  and it will be interpreted according to general
  rules of construction.

11
Is A Contingent Agreement A Contract? (contd)

• Weibe v. Bobsien (contd)
• Judgment (contd)
• Matter of the intention of the parties (paragraph
  26)
• Fancy or taste (para. 28)
• Where there is a contract
• Presumption in favour (para. 30)
• Property Bloodstock, Ltd. v. Emerton That was
  a case where a sale was subject to the vendor
  obtaining the consent of his landlord to an
  assignment of the lease to the purchaser. It was
  held that the landlord's consent was not a
  condition precedent to the formation of the
  contract of sale or the creation of the
  relationship of vendor and purchaser.

12
Is A Contingent Agreement A Contract? (contd)

• Weibe v. Bobsien (contd)
• Judgment (contd)
• Smallman v. Smallman Subject to the approval
  of the court
• Reasonable steps (para. 33)
• Dynamic Transport Ltd. v. O.K. Detailing Ltd.
  Subdivision approval needed -- The parties
  created a binding agreement. It is true that the
  performance of some of the provisions of that
  agreement was not due unless and until the
  condition was fulfilled,

13
Is A Contingent Agreement A Contract? (contd)

• Weibe v. Bobsien (contd)
• Judgment (contd)
• Dynamic Transport Ltd. v. O.K. Detailing Ltd.
  (contd)
• but that in no way negates or dilutes the force
  of the obligations imposed by those provisions,
  in particular, the obligation of the vendor to
  sell and the obligation of the purchaser to buy.
  These obligations were merely in suspense
  pending the occurrence of the event constituting
  the condition precedent.

14
Is A Contingent Agreement A Contract? (contd)

• Paragraph 33
• From these English, Canadian and American
  authorities, a general rule is laid down that in
  a real estate transaction a condition precedent
  which must be performed by the purchaser will not
  usually prevent the formation of a contract but
  will simply suspend the covenant of the vendor to
  complete until the condition precedent is met by
  the purchaser.
• Obligation to take reasonable steps to sell the
  house
• Upon sale, the obligation to purchase and sell
  the defendants home unconditional.

15
Is A Contingent Agreement A Contract? (contd)

• Weibe v. Bobsien
• 1986 British Columbia Court of Appeal
• Seaton, J.A. The trial judge concluded that
  there was a binding contract and ordered specific
  performance of it. I agree with that conclusion
  and with the reasoning that led to it. (paragraph
  5)
• The parties intended there to be a contract
  (paragraph 7)
• Best efforts
• Consideration
• Mutual promises

16
Is A Contingent Agreement A Contract? (contd)

• Weibe v. Bobsien
• The dissent
• Subjective
• Objective
• Subjective-Objective
• subject to planning department approval of the
  attached plan of subdivision (paragraph 13).
• Implying a term
• Business contracts should not be permitted to
  fail over an omission that the parties would
  immediately have corrected if the parties had
  noticed the omission at the time the contract was
  made. And we have the "business efficacy" test
  and the "officious bystander" test to guide us
  (paragraph 14).
• Need for a mortgage (para. 17)
• What level of debt can the seller service?

17
Is A Contingent Agreement A Contract? (contd)

• Pietrobon v. McIntyre
• 1987 British Columbia Supreme Court
• Facts
• The plaintiff wants to sell a piece of land to
  the defendant and an interim agreement was signed
  to this effect (paragraph 2).
• Obtaining satisfactory financing, not
  fulfilled, according to the defendant purchaser
• This contingency was, according to the purchaser
  also meant to cover a house inspection, done by a
  cabinetmaker. The purchaser did not like what
  they heard, and they want to back out.
• Satisfactory mortgage is uncertain (Chan)
  (para. 7)
• Suitable mortgage is uncertain
• Therefore, satisfactory financing is also
  uncertain

18
Is A Contingent Agreement A Contract? (contd)

• Griffin v. Martens
• 1988 British Columbia Court of Appeal
• Facts
• Paragraph 1
• SUBJECT TO PURCHASER BEING ABLE TO ARRANGE
  SATISFACTORY FINANCING ON OR BEFORE FRIDAY, MAY
  31, 1985, AT 6 P.M. THIS SUBJECT IS FOR THE
  BENEFIT OF THE PURCHASER AND SHALL BE REMOVED IN
  WRITING ON OR BEFORE 6 PM. MAY 31, OTHERWISE THIS
  OFFER IS NULL AND VOID.
• The purchaser says he tried, but could not get a
  satisfactory offer the vendor says the purchaser
  did not try hard enough, because the purchaser
  wanted to re-negotiate
• Paragraph 4 Justice Lambert agrees with the
  majority in Wiebe
• Best efforts

19
Is A Contingent Agreement A Contract? (contd)

• Griffin v. Martens (contd)
• Paragraph 7 (contd)
• 1. Satisfactory to a reasonable person making
  the purchase about whom nothing else is known
• Not good, does not reflect satisfactory
• 2. satisfactory to a reasonable person in the
  objective circumstances of the purchaser
• 4. satisfactory to the particular purchaser with
  all his quirks and prejudices, but acting
  honestly.
• Not good, because that is satisfactory to him

20
Is A Contingent Agreement A Contract? (contd)

• Griffin v. Martens (contd)
• Paragraph 7 (contd)
• 3. satisfactory to a reasonable person with all
  the subjective but reasonable standards of the
  particular purchaser and

21
Is A Contingent Agreement A Contract? (contd)

• Paragraph 8
• The second and third meanings both combine
  subjective and objective standards. They are very
  similar in effect. I favour the third meaning as
  best expressing the actual intention of the
  parties by giving the most accurate
  interpretation to the words they chose to express
  their intention. The third meaning gives
  satisfactory a full and subjective significance
  but, at the same time, retains the commitment of
  the purchaser to use his best efforts, on a
  similar combined standard, to obtain the
  financing.

22
Is A Contingent Agreement A Contract? (contd)

• No unreasonable withholding
• The purchaser did not use her best efforts

23
Unilateral Waiver

• Barnett v. Harrison
• 1975 Supreme Court of Canada
• Chief Justice Laskin (dissenting)
• The case was argued twice before the Court. On
  the first argument, counsel for the respondent
  admitted that the contingency was solely for the
  benefit of the appellants. Then, on the second
  argument, this concession was in essence
  retracted by counsel, who argued instead that the
  condition was a true condition precedent, and
  therefore, by definition, for the benefit of both
  sides (paragraph 2)

24
Unilateral Waiver (contd)

• Paragraph 3 of the judgment
• The contract was entered into on February 10,
  1967, and was for the sale of certain land in
  Stoney Creek, an Ontario town, for the sum of
  350,000. A deposit of 5,000 was paid and the
  contract provided that 70,000 would be paid on
  closing and the balance of 275,000 would be
  covered by way of a mortgage back to the vendor.
  In the events which happened nothing turns on
  these terms of payment because the purchaser
  offered to close by payment in full in cash and,
  indeed, the contract of sale provided that the
  purchaser could pay the whole or any part of the
  principal at any time without notice or bonus.
• 1. The purchaser shall prepare and have ready
  for presentation to the said Town of Stoney Creek
  (and obtain an appointment from the said
  Municipality) his site plan within four months of
  acceptance of this offer.

25
Unilateral Waiver (contd)

• If this offer is accepted by the vendors, the
  contract of purchase and sale will be subject to
  the condition that the necessary approvals of the
  Ontario Municipal Board and the Town of Stoney
  Creek to the site plan and proposed changes in
  zoning, and any approval of the Committee of
  Adjustment or Planning Board required are given.
  The applications for and all matters and
  appearances relating to such approvals shall be
  prepared by and at the expense of the purchaser
  but may be brought in the names of the vendors.
  The vendors agree and undertake to give all help
  and co-operation required by the purchaser and to
  execute all necessary documents and make all
  attendances necessary (without costs to the
  purchaser) to assist in and facilitate the
  obtaining of the approvals and registrations
  required by the purchaser. It is agreed between
  the parties that the Application and hearing
  before the Ontario Municipal Board shall be
  completed on or before the 30th day of September,
  1968 (without the decision necessarily having
  been made).

26
Unilateral Waiver (contd)

• Provided however, if any adjournment results
  from opposition beyond the control of the
  purchaser, then the said date for completion of
  the application and hearing shall he extended to
  the 31st day of January, 1969 at the latest.
  Provided further, that the purchaser shall within
  two months after all Municipal approvals have
  been granted, cause an appointment to be obtained
  for a hearing before the Ontario Municipal Board.
  In the event that these conditions are not
  complied with then notwithstanding anything
  herein contained, the agreement of purchase and
  sale shall be null and void and the deposit
  monies returned to the purchaser.

27
Unilateral Waiver (contd)

• 2. If this Offer is accepted by the vendors, the
  contract of Purchase and Sale will be conditional
  upon
• (a) The said lands being serviced with adequate
  water and adequate sanitary sewer facilities to
  accommodate the purchaser's site plan of
  commercial and residential requirements within
  the terms of the zoning by-law.
• (b) There being no charges for services against
  the lands other than those charges in existence
  at the date of acceptance of this agreement.
• (c) There being no capital contribution required
  by the Town of Stoney Creek other than the usual
  five per cent (5) for land dedication.
• In the event that any of the above conditions are
  not complied with, the purchaser shall have the
  option to declare this agreement null and void
  and to have the deposit returned or to accept the
  changes and complete the agreement.

28
Unilateral Waiver (contd)

• 3. It is understood and agreed that the
  purchaser shall not be required to make any
  amendments to his proposed site plan in the event
  that approval by all necessary persons,
  departments or agencies is not obtained. In the
  event that the proposed site plan submitted by
  the purchaser is not approved by all persons,
  departments and agencies, then the said agreement
  shall be null and void and the deposit returned
  to the purchaser forthwith. Provided, however,
  the purchaser may at his option, make any
  necessary amendments to meet the requirements of
  the persons, departments or agencies. Notice of
  the exercise of such Option by the purchaser
  shall be given to the vendors within forty-five
  days of the said refusal of approval having been
  communicated to the purchaser.

29
Unilateral Waiver (contd)

• 4. This offer shall be accepted on or before the
  11th day of February, 1967, otherwise void. The
  sale shall he completed sixty days after the date
  the Ontario Municipal Board approves the proposed
  site plan prepared by the purchaser on which date
  possession of the lands is to be given to the
  purchaser.
• First, the purchaser tried 15 times to get site
  plans approved and was unsuccessful. Therefore,
  he was not going to be able to build the planned
  apartment building. (paragraph 4)
• The vendor took no interest in this, but got a
  better offer and wanted out of the agreement.
  (paragraph 5)
• The trial judge and the majority of the Court of
  Appeal held that this is a true condition
  precedent and is thus incapable of unilateral
  waiver (paragraphs 6-7)

30
Unilateral Waiver (contd)

• Turney v. Zhilka
• 1959 Supreme Court of Canada
• "Providing the property can be annexed to the
  Village of Streetsville and a plan is approved by
  the Village Council for subdivision."
• For the benefit of both sides
• Dependent on the will of a third party
• Neither party has undertaken to do it
• Neither party has reserved a power of waiver

31
Unilateral Waiver (contd)

• Paragraph 9
• A condition which is characterized as a condition
  precedent may be one in which both parties have
  an interest and yet it may be subject to waiver
  at the suit of one only of the parties. That is
  because their interest in it may not be the same.
  The condition may be for the protection of one
  party only in the sense that it is solely for his
  benefit

32
Unilateral Waiver (contd)

• Just because it is in the hands of a third party
  does not mean that it is non-waivable.
• Financing example (paragraph 10)
• Paragraph 15
• It is on this basis only that it can be said, as
  Judson J., did, that there was here a true
  condition precedent, that is one external to the
  obligations of both parties and one where the
  contract did not give the carriage of the matter
  to either one of the parties so as to provide a
  basis for contending that it was for his benefit
  alone and could be waived to him.

33
Unilateral Waiver (contd)

• If not in this case, then when (paragraph 19)
• Forgiving the failure of others is different from
  forgiving your own failure when the contingency
  is not for your own benefit
• Paragraphs 22-24
• 1 No express ability to waive
• 2 Express ability to waive
• If you have the right to waive, you have it the
  addition of it is redundant and does not affect
  the interpretation of other provisions (paragraph
  23)
• Null and void does no mean null and void,
  because taken literally, it makes an option
  (paragraph 24). This is a concern, but not when
  it is solely for the benefit of the waiving
  person.

34
Unilateral Waiver (contd)

• The completion date of the contract is dependent
  upon the site plan being accepted.
• Nothing turned on the completion date (paragraph
  26)
• This is not re-writing the contract (paragraph
  28)
• The vendor not knowing until the completion date
  does not offend (paragraph 28)

35
Unilateral Waiver (contd)

• Justice Dickson
• First, there is a distinction between
• the right of the purchaser to waive a default of
  the vendor in the performance of a clause
  inserted into the contract for the benefit of the
  purchaser, on the one hand, and
• the attempt by A to waive his own default or the
  default of C a third party whose consent is
  needed (paragraph 35).
• Second, this contract was drafted by legal
  advisors. The contract provides that if the
  conditions are not fulfilled, then the contract
  terminates. Therefore, Justice Dickson says that
  it to allow unilateral would ride roughshod over
  the contract terms and amount to rewriting the
  parties' agreement (paragraph 35).
• In other words, Justice Dickson buys the
  interpretation argument rejected by Chief Justice
  Laskin a paragraph 23

36
Unilateral Waiver (contd)

• Third, if the purchaser is the right to waive,
  this may turn a conditional agreement into an
  option. This is particularly problematic where
  there is a long waiting period before it is
  determined whether the condition is satisfied
  (paragraph 35).
• Fourth, adherence to the Turney reasoning avoids
  the issue of determining in whose favour the
  condition is expressed. What he is really saying
  is that he does not want the courts having to
  figure out if the clause was inserted for the
  benefit of only one party (paragraph 35).

37
Unilateral Waiver (contd)

• Fifth, Turney v. Zhilka is a rule of long
  standing and is predictable and certain
  (paragraph 35)
• Sixth, he says that in Beauchamp v. Beauchamp,
  there was no reason for the vendors to be
  concerned about where the money came from as long
  as it arrived (paragraphs 36-37).