Real Estate Transactions - Umbach
1. The Transaction
(ii) Vendor and purchaser
2. Financing a real estate transaction
The Process – Residential
- Seller calls realtor, and realtor gives listing agrmt (a contract betw seller and agent
it sets out how long it will last, what the agent’s commission shall be, etc.)
- It is the agent’s responsibility to market the listing
- Agent usually plays the role of negotiator of price to the purchaser
- In BC typically an agent negotiates all the way to the closing of the sale
Huge risk to agent b/c no legal training to recognize legal issue
Vendor/purchaser are at risk, they have differing interests; therefore, it is
risky to have one agent do the negotiating.
- Can use a standard form agrmt for convenience
- Usually there are conditions in the agrmt ex. For inspection (implies that purchaser
too has an obligation to have an inspection done).
- Condition removal – purchaser will be satisfied or not w/ the conditions if
happy, a note will be sent to vendor saying that conditions are removed, thus agrmt
is now enforceable.
NOTE: Commercial Property
- Purchaser usually wants to know more ex. About city work orders, zoning,
mechanical/structural status, liens, middens (aboriginal grounds), environmental
Due Diligence Process = finish this before the purchaser removes the conditions
Completion of Purchase and Sale (p and s)
(1) Transfer Form – seller signs and is registered w/ LTO as evidence of new
purchaser (used to be called a deed)
(2) Statement of Adjustments – adjusts the taxes for the year so neither party
overpays. Property taxes are paid twice a year in Vancouver.
(3) Sometimes assignments of contracts or leases.
- Purchaser has the obligation to create the documentation
- Vendor must provide registerable transfer
- Purchaser’s lawyer signs an undertaking (can be subject to disbarment if not
- Vendor sends transfer to purchaser’s lawyer in exchanged for undertaking that it
won’t be registered until the vendor’s lawyer receives the purchaser’s payment.
- Finally, LTO sends you a yellow piece of paper = the State of Title Certificate and
this proves that you are the owner.
w/o undertakings, this would be a very costly process
Story of Martin Wieric – he scammed his clients by never discharging their
mortgages, he just pocketed the money – over 50 million dollars’ worth.
Vendor has mortgage on property
Vendor’s lawyer sends transfer of undertaking that they won’t use it until there is
Vendor’s lawyer undertakes that when she gets the money, she will send it to the
vendor to pay to discharge the mortgage and vendor gets whatever is left, if
Land Title Act (LTA) – Torrens System
- The heart of our LT system = indefeasibility
- LTA s. 20 “Except as against the person making it”
It’s no good as against parties outside the contract, unless it’s registered, in other
words, the registered person rules.
- So if A is registered, then she is the owner, but if B also agreed to sell to C and D,
the C and D have a claim for damages as agst B
Indefeasible Title = conclusive evidence of ownership
- Subject to the original crown grant
- Subject to Federal, Municipal and Provincial taxes
- Subject to a lease of less than three years and the person lives on the property (new
owner can’t move in)
- Subject to govt right of expropriation (also BC Hydro, Telus, etc.) and they pay you
but not much
- Subject to Fraud or forgery: A forges to B who knows of the fraud (i.e. no good
title) and passes to C who does not know of the fraud (is a bona fide purchaser for
value and gets good title).
Interests less than fee simple = mortgages and charges (lien, caveat, etc.) on the land.
Charges = deemed to be entitled to the interest that the charge makes –just b/c a charge is
registered does not mean that it is enforceable it only means that he registrar is saying
that it was properly registered.
s. 23 LTA- Indefeasible title, as long as it remains in force, is conclusive evidence at law
and in equity that the person named in the title is indefeasibly entitled to an estate in fee
simple to the land described. Subject to some exceptions: fraud, lease of less than 3
years, taxes, etc.
s. 24 LTA – abolishes title by prescription (no squatters’ rights)
s. 25 LTA – registered owner is protected against actions to recovery his or her land
except by certain persons, ex. Mortgagees, a person deprived of the land by fraud, etc.
s. 26 LTA – just b/c you register a charge, does not mean its enforceable, just means it
was registered properly
s. 27 LTA – The registration of the charge is deemed to be notice:
(a) that it was registered
(b) of the contents of the contract
s. 28 LTA - If there is more than one charge, priority is given to the one registered first,
subject to a contrary intention.
s. 29 LTA – Notice of effect of unregistered docs
Except in the case of fraud, in which you are a participant, a person contracting w/
registered owner is not subject to any notice constructive or otherwise of unregisterable
s. 33 LTA – An equitable mortgage or lien created by the deposit of a duplicate
indefeasible title or other instrument is not registerable.
II. MARKETING THE PROPERTY
A. Listing Agreements
1. General – types
Four Main types of listing agrmts:
1. General/Open booking = principle agrees to pay commission upon the agent
completing the sale, but the principle has the option of also listing w/ other agents.
2. Exclusive booking = principle agrees to list solely w/ this agent to the exclusion
of all others. S. 57 REA says Only valid if notice given in writing to all parties
and must have an expiry date (to protect the vendor)
3. Exclusive right to sell = Exclusive agent entitled to commission regardless of who
is responsible for the sale.
4. Multiple listing agrmt = most common, you are hiring all agents in the industry
giving permission for any agent to bring an offer to your property, obligates a
sharing of commission. Main agent is required to inform other agent members of
the ML service, and any agent who gets involved is owed a chunk of the
2. Agents’ status under Agreements
- Agents are at this time governed by the Real Estate Act (REA)
- They are governed from a policy stand point
- REA also creates the Real Estate Council which is akin to the Law Society
- Relationship betw the vendor and the agent is governed by the listing agrmt
- There are generally two types of agents:
(b) Listing agents = for vendor
(c) Selling agents = for purchaser
Carmichael v. BMO
- Property listed under multiple listing by BMO, the trustee for the estate
- Listing Agent = Cuthbert
- Sub-Agent (odd term for court to use considering this is a MLS and thus all
agents should be equals) = Tilley
- Plaintiff made several offers through Tilley which were refused, meanwhile
Bradley makes offer of $ 27, 500.00 to Cuthbert provided that he sells his home.
- BMO makes counter-offer to plaintiff for the $ 27, 500.00 to be accepted by
Friday at 6pm.
- Plaintiff communicates acceptance to Tilley who makes numerous attempts to tell
BMO. Manager for BMO learns of acceptance very shortly after six and says
that it is too late.
- Court states that no agent has the power to delegate his authority, or to appoint a
sub-agent to do any act as on behalf of his principal, except with the express or
implied authority of the principal.
- Court finds that – the relationship of principal and agent betw the def and sub-
agent has been established by virtue of the terms of the multiple listing agrmt, the
usage in the trade, the knowledge of the principal that the listing agent intended
to delegate his authority, and the adoption of the acts of the sub-agent in showing
the prospective buyer through the property in the presence of the principal.
- BMO knew MLS involved shared responsibilities and commission, and BMO
expressly acquiesced when he allowed Tilley to show the property.
- Further, it was inequitable for BMO to not have anyone at the bank betw 4pm and
6pm with the authority to accept the offer.
- Order for specific performance is allowed.
Real Estate Act
- Gives a wide definition to agent: "a person who, on behalf of another, for or in
expectation of a fee, gain or reward, direct or indirect, from any person, (a)
disposes of real estate on behalf of another is an agent …"
- Does not say “for commission”, so could offer other kind of consideration & still
- You don’t come w/in definition if sell your own home (“on behalf of another”).
- Not necessarily directly from principal (vendor)
- Broad definition – anything to do with buying or selling RE (leasehold interest,
FS, right to purchase or opt out, partnership or share in business); public policy
purpose to protect purchasers by placing restrictions on RE agents. VERY
- A lawyer can still sell property w/o having to be governed by REA.
S.3(1) You cannot hold yourself out to be an agent w/o a valid licence; (2) a salesperson
cannot hold out to be salesperson w/o a valid licence and be employed by agent;
- Agent = individual or company
- Salesperson = person employed by agent to do anything in definition of agent
S.3(4) A superintendent, a/f a hearing if requested, must refuse to issue a licence if it
appears that applicant is not suitable person to be licensed or person nominated by
applicant is not a suitable person to exercise the rights and privileges under the licence.
- Ensure that agent is competent and follows proper rules.
Ss. 11-13 Real Estate Council – self-governing body with delegated powers from
superintendent, which includes authority to licence, educate licensees, enforcement and
- Hearing governed by rules of due process, appealed to Commercial Appeal Board,
* Only an agent can enforce collection of commission (not non-A even if sign ag’t)
s. 31 Council has the authority to conduct inquiries into the conduct of the agents
S.40 Consequence if not licensed – cannot get paid commission (committing an offence if
pay or receive commission w/o being licensed).
S.41 Agent can’t work for an unlicensed agent
S.42 Agent can’t employ unlicensed people
S.47 A non-licensed agent cannot maintain an action to recover commission even if sign
Citifund v. Cressey
- Unlicensed person of a RE firm introduced potential buyer to licensed A and
seller. Several meetings occurred and agreement reached, but sale did not
complete. Potential buyer refused to pay on commission agreement on basis that
sale did not complete since introduction made through unlicensed person who
could not collect commission.
- Introduction not effective cause of sale. Provision in act that unlicensed persons
cannot collect commission was not meant as an out for those obligated to pay
commission. Right result but issue was whether it was b/c unlicensed A was
acting as agent or salesperson.
Note: Following people exempt from REA (s. 2 REA):
A liquidator or receiver
People in mining/petroleum industries
Lawyers in the course of their practice
2. Duties of an Agent
Lac Minerals Ltd. V. International Corona Resources Ltd.
- IC is a junior mining company, which made arrangements to attempt to buy
- LM is a senior mining company, visited IC and was told by them about
confidential geological findings and the importance of the Williams property.
- LM later acquired Williams property, but never told Corona of its intention to do
- TJ found that LM and IC had not concluded a binding contract but that LM was
liable for breach of confidence and breach of fiduciary duty.
- Test for establishing a breach of confidence:
(1) that the information conveyed was confidential;
(2) that it was communicated in confidence; and
(3) that it was misused by the party to whom it was communicated.
- LM and IC were working towards a joint venture and had a mutual understanding
that valuable info would be communicated to LM under circs giving rise to an
obligation of confidence.
- The info provided by IC was the springboard through which LM acquired the
Williams property. There was a duty on LM not to use this info only for the
purpose for which it was conveyed.
- Burden is on LM to show that it did not use this info for a prohibited purpose, if it
cannot show this, then IC is entitled to recover to the extent of the detriment
- Test for a fiduciary relationship:
(1) The fiduciary has scope for the exercise of some discretion or power (trust and
a) Is there a reasonable expectation that the fiduciary would not act
in a way that would be to the detriment of the beneficiary?
(2) The fiduciary can unilaterally exercise that power or discretion so as to affect the
beneficiary’s legal or practical interests (what is the industry practice?); and
a) What is the importance in the particular industry that we are
concerned w/, w/r/t the standards to determine the expectations
There was no such practice in the industry in this case
(there was also no confidentiality agrmt)
(3) The beneficiary is peculiarly vulnerable to or at the mercy of the fiduciary
holding the discretion or power (is there evidence of vulnerability?).
a) Is the beneficiary dependent on the fiduciary for whatever
happens to it?
- Facts here support the imposition of a fiduciary obligation which LM breached
because of (1) trust and confidence; (2) industry practice; and (3) vulnerability.
- Court imposes a constructive trust as a remedy here.
Be aware that an agent may not be in breach of his or her contractual obligations,
but could still be found in breach of a fiduciary duty (in equity).
Knoch Estate v. Jon Picken Ltd.
- Issue = nature and extent of a duty owed by a selling agent to a vendor of property
listed and sold under a multiple listing agrmt in circs where the selling agent does
not have any direct contact with the vendor and does not advise the vendor on any
aspect of the sale.
- 100 acre parcel of land coming out of Knoch estate to be sold
- Estate administrator listed property on multiple listing agrmt by Royal Trust
Jenkins, sub-agent submits offer on behalf of Manella, Royal Trust accepted.
- Later, Jenkins negotiated sale of the property from Manella to Caterpillar for an
increased price. Note: at time offer was presented by Mantella, Caterpillar was
not in “buy-mode.”
- Plaintiffs claim that Jenkins had a duty to disclose the Caterpillar offer to the
administrator of the estate.
- Judge found that Jenkins was in conflict of its duties to Caterpillar, but that the
issue raised in this trial was Jenkins obligations to tell the administrator of the
estate about Caterpillar’s interest.
- Court found that Jenkins had the following obligations:
(b) to make a full disclosure w/r/t offers he submits (only applies to selling
(c) a selling agent is not bound to seek out purchasers, the duty to the vendor
is limited to the offer submitted and continues only while it is being
(d) commission earned by the selling agent is in consideration of having
procured the offer and nothing more.
- As a listing broker, Royal Trust had a fiduciary obligation to faithfully serve and
promote the vendor (Knoch Estate)’s interests.
- However, an agent in the position of Jenkins, as the selling agent, may be the
agent of the vendor for limited purposes, which include authorization to present
an offer to purchase and to receive notices to the vendor as well as to make
representations binding on the vendor and to not deceive or mislead the vendor –
but that is all – there is no special fiduciary relationship.
- Jenkins’ duty was to bring offers in, he never even communicated with the
original trust company, so it would be difficult to say they relied on him, or that
he decided them.
- Not everyone called “agent” is also a fiduciary.
3. Duties to Principal
Agents can owed duties to people other than the principal – may owe duty to
purchaser and people outside of the transaction.
Real Estate Act
S. 35- An agent or licensee must not, as an inducement to purchase or sell real estate,
make a representation or promise that the licensee or any other person will sell or resale
or guaranty resale, purchase or mortgage, unless the agreement is in writing
1. Section aimed at Jenkins from Knock Estate
2. We are trying to get to a point where “flipping property” is
disclosed in advance.
S. 36- before assisting or representing any person in a real estate transaction, a licensee
must disclose how the licensee is related to the transaction (number of situations given)
3. You must say whether you are a selling or listing agent,
whose interests you are looking out for, etc.
S. 37- duty on the licensee to deliver signed acceptance of a contract to every party to a
transaction and a licensee must not try to induce a party to break a contract.
- Usually agent is held liable for breach of any of these provisions
- Knoch – not making any misrepresentations about purchaser, but merely
withholding information related to transaction (vendor got listing price wanted
anyway, therefore no damages).
C/L Duties on Agent: Fiduciary duties discussed:
Can be no secret profits – if agents owns shares in co that selling and not disclose this, then
secret profit to agent.
Agent cannot act in conflict of interest – if acting for both parties, must disclose everything
or forfeit commission – sue for damages.
Price et. Al. v. Malais et. Al.
- Purchaser’s action for return of their deposit and Vendors’ action for damages for
negligence of their real estate agent.
- Vendors listed their property in Peachland, BC with the defendant realtor “agent.”
- Vendors told purchasers and agent that there was a waterline running down one
side of the property and that it was to be eventually replaced by a larger water
- Purchasers expressed their interest in putting up a pool.
- Real Estate agent did not requisition a state of title certificate as recommended by
the Real Estate Council.
- Purchaser signed purchase agrmt that stated that the property was “free of all
encumbrances” but later learned that two easements, one which interfered with
their plans for a pool, were registered against the title.
- Agent was on notice about there being an easement and by not checking the
certificate of title; she failed to exercise the degree of care and skill that is
expected of an agent in such circs. Agent had a duty to protect the interests of
both parties, especially the vendor.
- Vendor’s claim agst agent should succeed and Purchaser is entitled to repudiate
the agrmt and to a return of their deposit.
4. Duties to Third Parties
Real Estate Act s.48 – Preservation of validity of contracts
Failure to comply with any provisions in the part will not render a contract void or
voidable as against a person other than the licensee by or through whom the contract was
negotiated or entered.
s. 38 REA - statutory obligation on a licensee to disclose when they are personally
involved in the acquisition of real estate.
Bango v. Holt et al.
- Bango (recent immigrant) agreed to purchase the premises (from Holt) in question
for accommodations for he and his wife, and to make money of rentals.
- Bango sought the help of Mrs. K, a real estate agent, who helped him find
properties, including the one in question.
- Property listed as “expired duplex permit renewable” (this description prepared by
- Holt swears that he told Ko that the property had been zoned as a duplex, but that
it could not be zoned as such again b/c Holt had taken an oath for the City that he
would not. Mr. Ko’s evidence is conflicted as to whether he was told this.
- Mrs. K told Bango it was a duplex, and Holt heard this and did not deny it.
- Court found Holt not credible, found him guilty of fraudulent misrep.
- Mrs. K was negligent in carrying out her duties; she relied only on Mr. Ko’s
listing and did not take any steps to uncover if the property was a duplex. She
knew what he wanted the property for, she did not gain all info which may have
been useful to the plaintiff.
- Mr. Ko was likewise negligent for not making any enquiries.
- Agents had a duty to act in a reasonable and careful manner and to bring forward
all of the information that they should have.
- Court went so far as to find that Holt was guilty of fraud.
Smith v. Yeasting
- plaintiff seeks order for specific performance of an agrmt for the sale of lands
- defendants counterclaim for rescission on the ground of fraudulent misrep or
damages for breach of warranty
- Issue = whether or not there was a misrep or a warranty in the terms of a certain
clause in the agrmt.
- The clause confirmed that the installation of certain plumbing and electrical met
with the City of Vancouver’s by-laws.
- Real estate agent assured that the req’d permits were obtained, which was untrue.
- Plaintiff had been notified that the plumbing in one of the two bathrooms was
illegal and had to be removed w/in 30 days.
- Defendants got a home with one bathroom, instead of the two, which they thought
they were getting.
- Agent made the representation w/o the authority of the Plaintiff
- The principal is liable for the fraud of the agent – they are one, and it does not
matter which of them made the incriminated statement or which of them
possessed the guilty knowledge.
- Listing agent has a duty not to lie to the buyer.
- Defendants are entitled to rescind the contract.
Duties of the Agent (Summarized):
(a) The agent will owe contractual and CL duties to the principle and may also owe
duties to other parties. May be seen as fiduciaries of another party (even one that
they do not have privity of contract with)
(b) An agent must exercise the standard of skill and diligence of a reasonable and
(c) Basic duty of honesty to third parties (no fraudulent misrepresentation)
(d) There is an implied duty to do reasonable research (title, permits)
o Due diligence
5. Remuneration of the Agent
(ii) Statutory Requirements
(iii) Real Estate Act
s. 46 – agents are not to be paid commission based on the difference betw the listed price
and the actual price of the property.
s. 48 – a contract of p and s is not void b/c it fails to comply with this part.
s. 50 – makes it an offence to fail to comply with provisions of the act, or to make a false
statement when applying for a license under the act.
(iv) No Agreement
b. How agents get paid:
i. Real Estate Act
1. s. 41- you have to be licensed to act as a real estate agent
2. s. 45- all commission payable to an agent in respect of a
sale of real estate must be on an agreed amount of the sale
price and if no agreement on the amount of commission the
rate of commission, the rate will be that which is the
prevailing rate in the community in which the land is
a. There are lots of cases where agents do not have a
listing agreement and do not get anything
3. s. 47- in order to get commission or enforce an agreement
in respect of commission, you have to be a real estate agent
(i.e. licensed under the Act)
c. Listing Agreements
i. Every listing agreement says when the commission is earned:
sometimes at the sale of the property, or when the agent is the
effective cause of the sale of the property.
1. “Effective cause”- if the agent introduced the future buyer
to the property but then the buyer buys the property after
the expiry of the agreement
Banfield v. Hoffer
- Defendant wanted to sell his house, but did not want the hassle of the open listing,
or advertising. He hired Mrs. B who worked for a real estate firm and she
arranged for several purchasers to view the home.
- The vendor Mrs. B found was willing to purchase the home, but not at the asking
- No agrmt was reached on the subject of commission for the agency, there was
only a promise to pay if a sale occurred
- Mrs. B did nothing after that, and the vendor and purchaser eventually negotiated
their own agrmt and the house was sold.
- Mrs. B introduced purchaser to the house, negotiations were carried on for several
months, but the final transaction was completed by the parties themselves with no
assistance from Mrs. B. Therefore, she deserves some compensation (but much
less than the TJ awarded) on a quantum meruit basis. The law implies a
reasonable sum to be payable.
Block Bros. v. Viktora
- respondent realty company sues the appellant for a commission on the sale of his
- respondent and appellant entered into contract whereby the resp was to be the
appellant’s exclusive agent to sell his house for $ 58,000 during a one-year period
- Portion of the contract stated that the resp be entitled to commission upon a
person being introduced to the property during the term who is ready, willing and
able to purchase whether or not such a person is introduced by any person
- agent introduce a purchaser to the house, but purchaser (Mr.C) was not interested
in it for that price
- After the listing agrmt had expired, the appellant placed his own advertisement in
the newspaper and it was answered by Mr. C, who eventually bought the property
- It is clear that the resp was not the effective cause of the sale
- Court found that either the clause meant that the eventual purchaser not only had
to be introduced to the house but also purchase the house w/in the one year
period.(which need not be said cause that would comply w/ another section in the
contract) OR it means that if you are introduced to the property during the listing
that the agent gets a commission if at any time in the world you later decide to
purchase, even under different terms!!(which is ridiculous)
- Court says, when in doubt – “contra proferentum” – meaning that here the agent
should not benefit from a contract that he proffered to the appellant, with a crucial
clause written confusingly and in small print.
- Appeal allowed, agent not entitled to any commission.
(v) No right to remuneration
NO RIGHT TO REMUNERATION
d. There are some instances when an agent will not be entitled to their
i. If there is poor language in a listing agreement in respect of the
commission, you interpret the language contrary to the interests of
the person drafting it
ii. If a condition in the listing agreement is not satisfied, there is no
binding agreement (hence no commission)
iii. If there is negligence
iv. If there is no privity of contract with the agent (Banfield and s. 45
of the Act)
v. If the listing agreement has expired.
Academy Aluminum Products v. McInerny Realty
- sale of property did not result, but at trial, agent awarded half of her commission
- TJ found that the two errors responsible for the non-completion of the sale – one
was the innocent misrep by the owner, and the other was due to the negligence of
- A and M entered into a listing agrmt whereby A appointed M the exclusive agent
to sell 2 warehouses in Edmonton.
- One of the properties was subject to a mortgage, so M’s agent listed it on the
- Purchaser made and offer which was accepted by A, but it was later discovered
that there were 2 errors on the listing form – which had been used in drafting the
offer to purchase = the mortgage was really a demand debenture and could not be
assumed by the purchaser as would a normal mortgage, next the monthly
payments were deficient by $ 900.00.
- 1st mistake – owner said to agent that it was a mortgage, but knew it wasn’t –
innocently thought it could be turned into one.
- 2nd mistake – agent should have been more careful copying down payment
- Purchasers repudiated the agreement, but property was sold a few weeks later at
an increased price.
- Neither mistake can be proved to be more detrimental, however, there is a
difference in the parties positions – M was acting as an agent for a reward and:
Every agent acting for reward is bound to exercise such skill, care and diligence
in the performance of his undertaking as is usual or necessary in or for the
ordinary or proper conduct of the profession or biz in which he is employed, or is
reasonably necessary for the proper performance of the duties undertaken by him.
- It doesn’t matter that the owner was also negligent – the issue is only whether the
agent has performed the service for which the listing agrmt provided payment?
- NO. The agent did not perform her duty with the degree of skill, care and
diligence req’d by the agrmt, and so is not entitled to claim the payment provided
for by it.
III. THE CONTRACT OF PURCHASE AND SALE
A. The Contract
- Every piece of land has title to it
- It is registered and has a registered owner at the LTO
- LTO recognizes only registered owner
- Distinction betw legal and beneficial owner:\
legal = registered owner
beneficial = entitled to benefits of the property, cannot be
registered, remember s. 20 “except as against the person making it”
- Bare trust = registered owner only holds the title
- Other types – registered owner may have responsibilities w/r/t land on behalf of
- Sometimes this set up may be to hide the beneficial owner’s ID from public b/c
they are not on the title.
The Contract of P and S
- Just like other contracts – require:
(a) certainty of terms
(b) a meeting of the minds
(d) written vs. oral arrangements
- There are standard forms of contracts - 3 pg form
Sets out the parties who is vendor and who is purchaser
Describes the property – legal description including the Parcel Identifier Number
Describes deposit – amount and any conditions
Lists conditions upon which the p and s will be completed
Describes the status of title
Describes what is the condition of the property
Explains how the deal will be closed – i.e. lawyers’ undertakings
Declaration about who is whose agent – provision which permits on closing, for
lawyers to pay agents
1. Interim Agreement, Offer to Purchase, etc.
Offer comes in the form of writing delivered by RE broker to vendor’s agent or
vendor; vendor has opportunity to say yes or no; if no, can revise offer, making
Offer can be revocable – offeror can take back offer any time b/f accepted
(collateral agreement where there must be separate consideration).
Requirements of Offer
1) Parties – who are vendor and purchaser, all parties must be listed
2) Property – subject must be described accurately so a reasonable person could find it.
3) Price – how is it to be paid for and for how much
Contract can exist if 3Ps are in writing; if any 3 missing, no contract becomes ambiguous
Time element in offer - Offer may be specifically time limited (6pm Friday) or if silent
about time limit, w/in a reasonable time (courts do not say what this is)
Deposit: Some sum to secure obligation of the buyer.
Conditions: Subject to inspection, financing etc.
Dates: Completion, possession, adjustment.
Requirements of Acceptance:
1) Unqualified or unconditional – if put conditions on offer, then it cannot be accepted
until conditions are met, so no yet enforceable agrmt. Once there is unconditional
acceptance w/in time limit, binding agmt is formed.
2) Must be accepted by all parties – if multiple parties, all must sign and accept agmt.
3) Must be accepted w/in time limit
4) Must be communicated properly
2. Sample Structure
(i) Standard Form
(ii) Letters of Intent/Options
Letters of intent = expression of intent betw parties to reach some type of argmt
Usually non-binding – but still acts to focus parties’ attentions for
when you draft contract of p and s
They can be enforceable – court looks at whether or not parties
intended it to be binding.
In commercial trans, parties undergo negotiations and come up
with business terms that they want written down, but not binding.
One side writes a letter – purchase of property on following
Counter-offer: slightest change in the offer coming back from vendor; important b/c
kills first offer and becomes original offerors opportunity to accept or reject.
Most of the caselaw turns on courts trying to find intention to be bound- objective
Courts are loath to make up agrmt – from 4 corners of agmt, they want to carry
out the intentions of parties.
Courts use an objective test: what the reasonable man’s intention would be.
387903 B.C. Ltd. V. Canada Post
- actions arising out of the collapse of 2 related real estate transactions – BC and
Sybella offered to purchase CP’s post office building
- Letters of intent were signed and terms of the docs negotiated
- Issue = Did CP enter into a legally binding agreements with the plaintiffs in the
absence of senior corporate approval?
- In contracts you do not look into the actual intent of a person’s mind, you look at
what he said and did - a contract is formed when there is, to all outward
appearances, a contract.
- Plaintiffs told CP that they should only send those w/ the authority to negotiate a
transaction to Vancouver. CP complied, but did not send those w/ authority to
conclude a deal
- Letters of intent prepared stated that they were not to be construed as binding
agreements, and that to complete the transactions contemplation of the
transactions was subject to CP senior corporate approval.
- Objective Test to determine Intentions = do not look into actual state of mind, but
how a reasonable person in the position of the promise would take the agrmt to
- On balance of probabilities, court finds that the persons in position of the
plaintiffs and CP would reasonably understand and intend that these transactions
were be subject to senior corporate approval of CP.
- There is no evidence that the principal CP held out the negotiating agents of CP as
being authorized to sign and concluded agreements – no sign of ostensible
- Claims against CP are dismissed
- There is no duty to bargain in good faith, only duty court will impose is not to lie
Option = special kind of agrmt which gives a party the right to purchase lands on some
conditions. An agrmt for an option and an agrmt of p and s are separate agrmts and each
require consideration. Strict interpretations of limits on options.
B. Problems with Real Estate Contracts
(i) Law and Equity Act s. 59/ Statute of Frauds
Statute of Frauds
- Contracts regarding land must be in writing
- Replaced by s. 59 of Law and Equity Act (LEA)
59(2) This section does not apply to
(a) a lease for a term of 3 years or less ** - only need to know this subsection for
EXAM purposes. Because protection from s.22 of LTA.
59 (3) A contract respecting land or the disposition of land is not enforceable unless
(a) there is, in writing signed by the party to be charged or by that party’s agent,
both an indication that it has been made and a reasonable indication of the subject
A writing that indicates subject matter and that an agreement has been made
“Signature in writing”: Only has to be signed by a party you are alleging against
having a contract – only have to prove that party to be charged signed it.
(b) the party to be charged has done an act, or acquiesced in an act of the party
alleging the contract or disposition, that indicates that a contract or disposition is
not inconsistent w/ that alleged has been made, or
“Part Performance” section – other person has done or failed to do something so
that behaviour looks like formed agreement with you.
Ex. B accepts A’s offer and pays deposit as part payment – enforceable contract.
(c) the person alleging the contract, in reasonable reliance on it, so changed the
person’s position that an inequitable result, having regard to both parties interests,
can be avoided only by enforcing the contract.
Person alleging contract has done something to change his or her position such
that it would be unfair if you do not enforce contract.
“Reliance Doctrine” section – will hurt person alleging K if do not enforce it.
Courts have not interpreted this broadly – equitable remedy even if in statute,
therefore must come w/ clean hands, and Ready Willing & Able to close deal (not
easy to establish).
Ex. B accepts A’s offer and enters into K to buy 3rd party’s land in reliance on
sale to P – enforceable K.
In other words – Contract is not enforceable unless you can show one of the above
(a) A writing signed by the person being charged (vendor or purchaser)
(b) Part performance, or
- What would s. 59 say to oral alterations to contract?
o Courts must consider the Parole Evidence Rule – you cannot use oral
evidence to alter a written agrmt.
- When can you use oral evidence?
o When oral evidence is not inconsistent with the written agrmt
o When oral evidence only supplements the contract
- In a transaction, there are collateral docs:
o You can’t change any agrmt using a collateral doc unless all parties have
agreed to do so, and
o You need to supply separate consideration for a new agrmt or to modify
an existing one.
!!! There is always a section 59 question on the exam!!!!
Apart from main document that transfers title, there are Statements of
Adjustments and lawyer’s “Notes” are added to a St of Adj.
Statement of Adjustments: adjust purchase price for utilities, deposits, property
taxes, etc. – agreement to amount paying.
Lawyer’s Notes: May put in something that changes the deal – ex. may be UFFI
in house – Must read it as it becomes part of agrmt.
Nicol v. Weigel
- Mrs. W listed the property for sale with Yellowhead through Mr. P their agent
- Mr. N made an offer to purchase through Mr. P, signed a contract of purchase and
sale and paid a deposit
- Mrs. W insisted that Mr. N also pay 1988 taxes in addition to purchase price they
- Then Mr. P had a Notary do up the conveyancing docs, Mrs. W refused to sign
docs when she realized that there was no mention of Mr. N paying the 1988 taxes.
- Meanwhile Mr. N paid the Notary the purchase price, but was not tendered to
Mrs. W b/c she took off for Europe so Mr. N kept the cheque.
- When Mrs. W returned she sold the house to Mr. T and the conveyance was
- Mr. N’s deposit was returned to him by Mr. P
- Court found that there had been part performance on the part of Mr. N sufficient
to comply with s. 54 of the Law and Equity Act. The deposit paid by Mr. N was
an act acquiesced in by the party to be charged.
- Remedy of specific performance not available here because Mr. T already has the
property registered for himself. Mr. N was awarded damages in the amount of the
notary’s fees and disbursements plus the difference betw the purchase price
agreed to by Mr. N and that paid by Mr. T (less the 1988 taxes).
- Appeal dismissed
2. The 3 Ps and Vagueness/Uncertainty
Price, Parties and Property
- Court wants to know that there is some certainty as to the price.
- There must be a price or a method for calculating price
Arnold Nemetz Engineering v. Tobien
- Issue = is the language used in the written agrmt betw the vendor and purchaser
so vague and uncertain as to render the agrmt unenforceable?
- There is ambiguity w/r/t the part of the contract which relates in which manner
the deferred balance of the purchase price can be paid.
- “A deed shall never be void where the words may be applied to any extent to
make it good.”
- Every clause in a contract, if possible, must be given effect to.
- Look at the four corners of the instrument and if the real intentions of the parties
can be collected from the language w/in the four corners of the instrument, the
court must give effect to such intentions by supplying anything necessarily to be
inferred and rejecting whatever is repugnant to such real intentions as so
- This does not mean that the court should make a contract for the parties. In this
case the clause was so inconsistent and vague, the court could not determine the
intention of the parties and found the contract unenforceable.
- Must be certain who all of the sellers are – to sell property in its entirety, need
ALL of the owners to agree to the sale
- Need the right ones, and all buyers and sellers
- “Investors as Purchasers” – wording here ambiguous; basically means anyone in
world could be P – too uncertain.
- “Purchaser or Nominee” (give contract to close for purchaser). BC caselaw
conflicting: in Samoth Financial Corp. v. Todd, BCSC held that cannot use “or
Nominee” b/c too uncertain; in Santelli v. Bifano, the BCSC a year a/f said it was
OK to use “or Nominee” b/c all purchaser wanted to do was give contract to
someone else. Here, it would probably be improper to use “or” b/c too uncertain.
- “Purchaser and Nominee”. Majority of decisions say you can use this –
enforceable way of expressing other parties involved.
- Bottom line: If a phrase is trying to give the contract away to someone else, then
it should say this. “To X and give rights to assign to another party.”
- Must be a method for the reasonable person to determine which property you’re
- Must describe property in a reasonably objective manner
- Descriptions must be such that a third party could find the property.
First City Investments v. Fraser Arms Hotel
- Cumberland and First City brought separate actions agst the appellant for fees
alleged to be due as a result of agrmts entered into betw the appellant and
Cumberland and the appellant and First City
- Appellant retained Cumberland to negotiate a loan of one million dollars on its
behalf. Appellant has agmt w/ Cumberland that it will pay commission to
Cumberland upon receipt of a commitment letter from a willing creditor.
- Cumberland arranged to secure the mortgage w’ First City, First City sent an
agrmt to appellant which mentioned that several fees, etc. would have to be paid
and appellant agreed.
- Appellant later learns that part of its property is actually owned by the City of
Vancouver and that it’s unregistered lease would be expiring
- Appellant seeks financing elsewhere and demands its feasibility fee back from
- Appellant argues that the agmt sent by First City was too vague and uncertain to
- Court says NO - The intentions of the parties as to the matter deemed uncertain by
the appellant, can be clearly determined w/in the four corners of the agrmt.
- Fraser Arms case = court says all of the deficiencies did not affect the
fundamental terms (the 3 Ps)
- Thus, the agrmts as between First City and the appellant and Cumberland and the
appellant were binding. Appeal dismissed.
Wiebe v. Bobsien
- Action for specific performance of an interim agrmt involving the sale of certain
- Plaintiff as buyer seeks to compel defendant vendor to perform its obligations
- Defendant states that no agrmt was ever reached betw the parties
- Def listed property for sale with a realtor, plaintiff and def signed interim agrmt
which laid out purchase price, completion date, and also stated that plaintiff had
to sell his current home in order to initiate the sale.
- Def later decided that he did not wish to go ahead with the agrmt and cancelled it.
- Plaintiff refused cancellation and continued to fulfill his obligations under the
agrmt – sold his home and paid a further deposit.
- When completion date arrived, def refused to close.
- Court finds that there are situations where a condition precedent prevents the
creation of a contract, but there are also situations where it merely suspends
performance of some or all of the obligations set out in the contract until the
condition is met.
- The former occurs when a seller can elect not to perform the condition.
- Law says that the former usually occurs where there is a condition precedent such
as a “subject to” clause; a contract is formed on signing by the parties.
- 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 until the purchaser meets the condition precedent
- A real estate contract containing a condition precedent will usually result in a
binding agrmt of purchase and sale
- However, in some circs, such a condition may prevent the formation of the
contract if the agrmt itself and the surrounding circs indicate that it was never the
intention of the parties to bind themselves to a contract of purchase and sale.
- When the residence of the purchaser was sold, the vendor was contractually
bound to sell the property to the purchaser.
- Judge Lambert is astonished that the majority of the court insisted that the
purchaser use his best efforts to sell his house w/in the time limit.
1) Presumption against implying terms into contracts.
2) Fundamental terms required to find an intention.
3) Objective Test of intention to be bound.
4) Court will imply terms to give effect to the objective intentions of the parties or
for public policy.
5) Court will not imply terms of contract that can be completed without implying.
- Payment can indicate part performance on the contract
- Guarantee of purchaser’s obligations
- Quick access to a remedy for the vendor
Primarily governed by provision in the contract
- Affected by statute – REA s. 59 – agent is answerable to all parties w/r/t deposit,
upon disagreement agent can put money into court in trust until it’s settled.
Agents see the deposit as 1st access to their commission
Terms in contract says – how much deposit, when do you pay it, who is going to
hold it and can you release it?
* On closing – can release to vendor
* Not on closing – can only release if both parties agree
Contract law says that who has first resort to the deposit and whether or not the
deposit covers the losses suffered
In BC – if you say the deposit is absolute as liquidated damages then there is a
presumption that the parties intended to limit it to that amount. Phrase implies
that vendor turned his mind to what his damages should be.
Denning creates a test:
o Even if deposit looks like a penalty, if it’s not unconscionable, the vendor may
still be able to enforce it.
Lozcal v. Brassos
- Issue = effect of the phrase “liquidated damages” as it appears on real estate offer
and acceptance form
- Resp made offer to purchase land for $ 67, 000 and paid a $ 2, 500 deposit and
agreed to pay the balance before June 1978 – appl accepted this offer.
- Resp repudiated, appl accepted and re-sold property for $ 60,000
- Appl now claims the difference in purchase prices
- TJ found that the language “as liquidated damages” meant that the parties had
already determined the amount of damages in the case of a breach, and thus the
appl’s damages should restricted to keeping the $ 2,500 deposit.
- A genuine deposit generally has nothing to do with damages, except that credit
must be given for the amount of the deposit in calculating damages.
- Liquidated damages in a proper case are a genuine pre-estimate agreed upon by
the parties as to damages in the event of a breach of contract.
- Even if the parties label the deposit as liquidated damages, that does not relieve
the court from having to look at the contract and determine whether or not that
sum was intended as a genuine pre-estimate of damages for breach.
- Court looks at significant size of transaction and determines that it was meant to
be a deposit to show the buyer’s good faith intention to complete the transaction.
- Appeal allowed, deposit to be treated as a penalty and not as liquidated damages.
2. vs. Consideration
Hughes v. Lukuvka
- Appl claims that deposit he paid of $ 5,000 should be regarded as a penalty and
returned to him either in whole or in part.
- Parties signed and interim agrmt and appl paid $ 5,000 deposit w/ the words “as
- Appl asked for an extension for his time to pay the balance owing for the
purchase of the property, but was refused.
- When time came to pay, appl could not and resp exercise her right to cancel the
agrmt and keep the deposit.
- Later, appl sold the property to another purchaser
- This court finds that the words “forfeited as liquidated damages” in itself affords
evidence of a genuine pre-estimate of damages (although the wording is not
conclusive, it should not be disregarded w/o good reason), especially where it
cannot be said that the amount is “out of proportion to the damage”
- Appeal dismissed, deposit should be withheld as liquidated damages.
3. Disputes regarding Deposits (to return or not to return)
Stockloser v. Johnson
- Plaintiff brings action to recover sums of money paid by him to the def as
instalments for purchase price under 2 agrmts betw the parties. Plaintiff wishes to
rely on equity which states that instalments are not deposits to be forfeited.
- Agrmts had been rescinded by def after a default in payment by the plaintiff.
- When there is no forfeiture clause (there was such a clause here), if money is
handed over in part payment for the purchase price, and then the buyer makes
default, the, so long as the seller keeps the contract open and available for
performance, the buyer cannot recover the money, once the seller rescinds the
contract or treats it at an end owing to the buyer’s default, then the buyer is
entitled to recover his money by action at law, subject to any cross-claim by the
seller for damages.
- But, when there is a forfeiture clause or the money is expressly paid as a deposit,
then the buyer who is in default cannot recover the money at law at all . He may
have a remedy in equity to order the seller to repay it on such terms as the court
thinks fit. But only where the forfeiture clause is of a penal nature, and where it
would be unconscionable for the seller to retain the money.
- In this case there was a forfeiture clause, which looked like a penalty – BUT
equity will not step in b/c it was not unconscionable for the seller to retain the
money the purchaser gambled, lost and then wanted their money back.
Winley v. Milore
- $ 150, 000 deposit paid in increments for $ 2.6 million property
- Flood occurs, purchaser informs vendor that they are not closing
- Vendor brings action for specific performance AND keeps deposit
- Purchaser counterclaimed for return of deposit
- The contract included a clause giving the vendor the option of terminating the
contract in wherein the deposit would be forfeited to the vendor.
- The master accepts the argument that the vendor affirms the contract by
commencing an action for specific performance, by necessary implication of the
words of the contract; the vendor was not entitled to retain the deposit.
Real Estate Act s. 59 – Agents hold the deposits as stakeholders
- Agent must hold the money subject to any claim, which the agent may have
against the money for commission arising out of the real estate transaction, as
a stakeholder and not as an agent for one of the principals.
- Money held in trust can be paid into court
D. Interim Period – the period after the contract is signed but b/f completion
1. Relationship betw Vendor/Purchaser
Lysaght v. Edwards
- Agreement to buy and sell land
- Property severely damaged betw time contract became enforceable and closing
- Whose responsibility is the damage? Vendors or Purchasers?
- Risk in property passes to Purchaser upon the contract of purchase and sale being
signed (risk should follow where the benefit goes), provided there is no clause in
the agrmt keeping the risk with the vendor.
- However, putting risk on purchaser is counterintuitive b/c they have no control
over the property (must remember to insure buildings so they are protected if
- Vendor becomes, in equity, trustee and beneficial ownership passes to purchaser
- Lysaght is the law in BC – prima facie argument that risk is with purchaser, thus
need to deal with it in agrmts
- Paragraph 16 in the standard contract of purchase and sale deals with risk and
keeps contractually risk with seller – answer to Lysaght problem.
Rich v. Krause
- applicant and her husband had purchased a house using a buy back mortgage
(they assumed the existing mortgage)
- applicant who inherited her husband’s interest, applied under the trust act for an
order vesting titled in the property to herself, payments were dutifully made
- Application granted – applicant had shown (1) the vendor had disappeared and (2)
the vendor held the property in trust for the purchaser
- Once the equity of the vendor was paid out in full, titled would transfer to
2. Unpaid Price (Vendor’s Lien)
Martin v. Virtanen
- Issue = Is a purchaser vulnerable to the interest of a creditor who obtains and files
a judgment against the registered owner of land prior to the date of transfer of
- Plaintiff company registered a judgment in the LTO against certain property
wherein Mr. V was a 1/3 owner.
- Unbeknownst to plaintiff, Mr. V had already signed an agrmt to sell said lands to
Gill, free and clear of all financial charges and encumbrances.
- Gill had already paid a deposit for the property.
- Appears that notary helping Gill should have realised about the registered
judgment prior to closing.
- Judgment was registered after contract was signed but before closing.
- Gill sued judgment holder arguing that it had no right to put judgment on title b/c
after contract was signed, interest in property passed to Gill and Mr. V no longer
had interest in land.
- LTA assumes that whoever is registered owner is the beneficial and legal owner
(assumes they are always together), therefore also says that whoever’s name is on
title is owner and has indefeasible title (w/ some exceptions).
- Judgment holder uses this to arge that Mr. V was still the owner when it registered
- Court looked at results first and made judgment – Gill would not have bought
property and it is not fair to make him responsible for the judgment.
- Court uses modified objective test to determine if contract transfers title
- Relied on Lysaght and held that when a contract is performed by actual
conveyance, it is thereby ascertained that the relation was throughout that of a
trustee and when a SPECIFICAALLL ENFORCEABLE AGRMT (say this)
exists, vendor is holding property in trust for purchaser, purchaser really has title
(legal and beneficial) but only if there is a specifically enforceable agrmt.
- It looks for a specifically enforceable agrmt using a subjective test – would the
court have enforced the agrmt had it been breached?
- Here, court would have been willing to enforce agrmt if purchaser had breach –
would have forced purchaser to buy land , therefore should remove judgment.
- The agrmt was subject to specific performance and so a constructive trust was
- The judgment attached “subject to the equities” in favour of Ps.
- Consequence = ownership structure apportions obligations to each party – vendor
is trustee and must take care of property and Purchaser must complete.
- Note: a lawyer should do a title search right when they get involved and just
before conveying title
- Judgment attached to Mr. V’s interest in the proceeds from the sale
- BCCA upheld this based on s. 79 of Court Order Enforcement Act – basically a
party in good faith had already acquired interest in land for valuable consideration
and then judgment against the land was entered on title.
4. Defaults – anticipatory breach
o Breach by one party before (closing date) contract is executed (ex. Usually one
party says I’m not going through with this deal)
o Other party can accept the breach and seek damages, or refuse the breach and
treat the contract as still being alive (they now must continue to perform their
obligations – they must be ready, willing and able “r/w/a”)
1. Status of Contract
A True Condition Precedent
o Condition to an agrmt where fulfillment of the condition depends on the act or
will of a third party
o Ex. “I will buy your house subject to the approval of my wife”
o This constitutes a mere offer and does not give rise to an agrmt.
o Contract is held in suspension until the condition is met
o As long as there is evidence that they intended to be bound by the agrmt, then the
court will find a way to make it work.
o Condition v. Warranty: condition depends on someone doing something; warranty
is a promise about the status of property, parties, etc or a FACT.
o Ex#1: Buyer’s obligation to buy the property is conditional on ability to obtain a
permit from the city allowing construction of a 2-storey building. This condition
puts a responsibility on one of the parties to do something – buyer must get
o Ex.#2: A party’s obligation to complete is conditional upon subdivision of
property. This condition, on the other hand, does not specify whether the
obligation is on the purchaser or vendor to get subdivision.
o This difference is the key to understanding the different kinds of conditions: Is the
condition the type where one of the party’s obligation is to do something or is it
ambiguous or does someone outside the agreement have to do something?
o Go right to the conditions first to determine if the contract is enforceable (a/f
you’ve determined whether it has the 3 fundamentals) b/c this is where the
contract will be the weakest!!
o Courts will throw certainty out the window to make sense of it and enforce K.
Turney v. Zilka
- Vendor pleaded that purchaser failed to comply with the following condition of
the contract, “providing the property can be annexed to the Village of Streetsville
and a plan is approved by the Village Council for subdivision.”
- Purchaser made little effort to give effect to this condition, and it was found that
the probability of annexation was remote anyway.
- Purchaser claimed that this condition was for his benefit anyway and was
severable, he sued for specific performance of the contract.
- This is a true condition precedent – meaning an external condition upon which the
existence of the obligation depends – the obligations under the contract, on both
sides depend upon a future uncertain event, the happening of which depends
entirely on the will of a third party (the village council)
- The parties did not promise that this uncertain event would occur, thus until it
occurs, there can be no breach of contract. Here the purchaser is trying to make a
new contract – purchaser’s claim fails.
Dynamic Transport Ltd. v. O.K. Detailing Ltd.
- Action for specific performance brought by Dynamic to enforce a contract of
purchase and sale w/ O.K.
- O.K. refuses to complete the transaction b/c the contract is silent as to which party
will obtain the subdivision approval req’d under the terms of the Planning Act.
- Both parties knew they needed subdivision approval, but the agrmt didn’t
stipulate who would seek it.
- The req’mt of approval became a condition precedent of the contract.
- Court will readily imply a promise on the part of each party to do all that is
necessary to secure a performance of the contract, and
- Court will also imply that each party is under an obligation to do all that is
necessary on his part to secure performance of the contract.
- In purchase and sale situation, the person who proposes the subdivision of the
land is the intending vendor. The vendor is under a duty to act in good faith and
to take all reasonable steps to complete the sale.
- Failure to designate that the vendor had to apply for approval does not make the
contract unenforceable. Court will imply a term that the vendor had the
- Court finds the contract binding and the vendor is req’d to make a bona fide
application for subdivision approval.
Subjective condition = discretion of third party involved is limitless
Objective condition (start to do this in Dynamic) = imposing duties on
third party, discretion has a limit “best efforts”
2. Waiver or Satisfaction
Law & Equity Act s. 54
If the performance of a contract is suspended until the fulfillment of a
condition precedent, a party to the contract may waive the fulfillment of the
condition precedent, even if the fulfillment of the condition is dependent on
the will or actions of a person who is not a party to the contract IF:
(d) the condition precedent benefits only that party to the contract,
(e) the contract is capable of being performed w/o fulfillment of
the condition precedent, AND
(f) where time is stipulated for fulfillment of the condition, the
waiver is made before that time has passed, and where time is
not stipulated, w/in a reasonable time.
3. Duties/Effect on Parties
Griffin v. Martens
- Issue = meaning of certain clause in contract of purchase and sale which stated
that the agrmt was subject to the purchaser obtaining financing prior to a certain
date. And further that the subject clause was for the benefit of the purchaser and
could be waived in writing prior to that same date – otherwise the contract is null
- Purchaser claims that he could not find adequate financing w/in the time limit;
vendor says that purchaser did not try hard enough and always meant to let the
interim agrmt lapse.
- Court says that the words “sole benefit of the purchaser” does not absolve the
purchaser from the duty to make his best efforts to seek “satisfactory financing.”
- Court decides to apply a test in order to determine what the parties intended by
the phrase “satisfactory financing”:
o “Combined standards test” = “Satisfactory to a reasonable person with all
the subjective but reasonable standards of the particular purchaser” = in
this way you combine objective and subjective elements – i.e. the
purchaser was to use his best efforts to obtain financing that was
satisfactory to him, and he was not to withhold his satisfaction
- TJ found that purchaser here withheld his satisfaction unreasonably, appeal
Kitsilano Enterprises v. G & A Developments Ltd.
- Action for specific performance of agrmt of purchase and sale of land
- Specific condition in agrmt was as follows: subject to purchaser’s review of all
leases, contracts, plans and surveys and the state of title to the lands, such
review to be to the sole satisfaction of the purchaser, purchaser's detailed
inspection of the building, results of such inspection to be to the sole
satisfaction of the purchaser, and purchaser arranging financing upon terms
satisfactory to the purchaser (DUE DILIGENCE PERIOD).
- Two covenants in agrmt on part of vendor to delivery certain docs w/in three days
of acceptance – vendor did not fully meet these obligations w/in time limit.
(Vendor used this to try to get out of agrmt, held this was a counter offer).
- Date was set when Purchaser was to notify Vendors if conditions met; if no notice
or not met, agrmt died.
- Shortly b/f date, Purchaser wrote to Vendor that it had been unable to arrange
satisfactory financing and proposed that the def take a second mortgage for
$500,000, and also proposed that the purchaser have discussions with some of the
tenants. If these conditions were met, the subject clauses would be removed. The
defendant rejected these proposals.
- Date of condition removal expired, contract terminated. Then, Purchaser removes
the conditions. Vendor does not want to complete and Purchaser wants Specific
Performance to enforce agrmt.
- If it was an offer, the question arose whether the letter of September 27 was a
counter-offer that had the effect of rejecting the original offer. Action dismissed.
- Builds on Lambert’s 4 ways to interpret condition – calls them total objective,
both objective and subjective, and completely subjective (4th is meaningless).
- Tries to rationalize Turney by defining 2 kinds of conditions:
1) Subjective condition: requires nothing to be done by either
party and effect is that there is no binding agrmt, just a bare
2) Promissory condition: requires one of the party’s to the agrmt
to do something for an enforceable agrmt to be found.
- Here, the conditions were purely whimsical and completely subjective to
Purchaser therefore could not be binding agrmt, but an offer (Lambert’s 4th
- Can imply from language in contract “to sole satisfaction of Purchaser” that
subjective only to Purchaser.
- A wording "financing satisfactory to the purchaser" would turn the agrmt into an
offer, which does not become a binding contract until the subject clauses are
removed. Also, problem is that there is no CONSIDERATION for it to be an
Tau Holdings Ltd. v. Alderbridge Developments Corp.
- Conditions in the contract:
(1) For the sole and exclusive benefit of Purchaser, Vendor
shall supply engineering and traffic reports.
(2) Subject to municipality approving re-zoning.
- Purchaser paid in stages – initial deposit and each time a condition was removed,
a deposit was paid.
- Although second condition satisfied, Purchaser failed to pay second deposit b/c
not satisfied with first condition. Vendor treated the agrmt terminated and kept the
first deposit. Purchaser wants deposit back. TJ – Vendor can keep deposit.
Lambert J. tries to bring it together:
(1) Purely subjective – no agrmt
(2) Purely objective – all obligations are held in suspense until event occurs
(3) Hybrid combo – 1 party has to do something, and there will be level duty
to do that determined by interpreting the intentions of the parties.
- Main agrmt and 2 little agrmts – attempt to express intention of parties to bind
themselves to agrmt.
- The objective-subjective category implies duties on parties and requires evidence
of intention to enforce agrmt.
- Purchaser could not simply reject the engineering and soil report as unsatisfactory
and thereby treat the agrmt as an "Offer" rejected; the conditions precedent
obliged the appellant to consider the report and not to reject them arbitrarily but
only on reasonable specified grounds.
- Time was of the essence in this agrmt, and by failing to pay the second deposit on
time the appellant was in breach, and the respondent entitled to keep the deposit
as stipulated in the agrmt.
- To solidify intention, put in clause that Purchaser will pay Vendor non-refundable
$10 for covenant that will not deal w/ any other party (closes the loop).
- Contract A – contract to buy and sell suspended until contract B is met
- Contract B – Vendor cannot do anything with property until conditions are
4. Condition Removal
Five Points on Condition Removal
(1) Precise drafting is essential. (In Tau it was set out what is satisfactory
(2) Set out who can remove conditions etc. (If someone can remove say so
s.54 Law and Equity Act).
(3) Avoid argument that a condition is a condition precedent and therefore
contract is null and void if it is not fulfilled; also have consideration for
each condition. (Unless your client wants out of contract, i.e. Kitsilano).
(4) Deal properly with notice of subject removal.
(5) Times to fulfill the contract should be specified to avoid “reasonable
time” argument from s.54 from Law Equity Act. If you give extension
specify time is of the essence.
Dallas Park Shopping Centre Ltd. v. Buy Low Foods Ltd.
- Plaintiff (Dallas) proposes to construct shopping centre and Def (Buy Low)
agreed to lease the largest retail space in centre
- Lease was subject to condition (for benefit of Dallas) that Dallas will have
obtained construction financing by specific date.
- Dallas said that it satisfied the condition, when it had not – and so Buy Low
elected to treat the agrmt as null and void.
- Dallas states that the letter claimed that it had “satisfied the condition” was
actually affirming that they were waiving the subject clause.
- Contract rule - Literal meaning is to be given to words of ordinary use unless this
results in absurdity.
- By clear wording of the agrmt, Dallas had the option to either verify truthfully
that the condition was fulfilled, or waive the condition. It did neither. It’s actions
can be described as hedging and buying time. The Lease was null and void, and
Buy Low succeeds.
4. Corporate Status
FINANCING THE PURCHASE
(b) Torrens System Assumptions
Ruled by very old established CL and Equitable rules, inherited all from time
immemorial – some makes it way into statute or is altered by statute
Financing – how to pay for the home/property
Historically, mortgage = grant or conveyance of the land as security for a debt
Equity steps in – concerned with preserving the debtors interest in the land
o Contract with the legal right to redeem on the property if the party meets its
obligations, it can redeem (i.e. pay off the property)
o Is a mortgage a conveyance or merely a charge on the land?
If a mortgage is a conveyance, then rights of the land flow with the conveyance.
If a mortgage is merely a charge, then the rights only flow with the charge.
The conflict between a mortgage being defined as a charge or a conveyance goes to what the
borrower can do with the property and what is the difference between a legal mortgage and an
equitable mortgage. If the mortgage is a conveyance then can the borrower really do anything
with the property after granting the mortgage because they no longer own the property but rather
only a right to pay the mortgage and get the property back - the evidence of that conveyance
being the registered mortgage not an actual transfer of the title. Also, if the mortgage is only a
charge then the main difference between a legal mortgage and an equitable mortgage disappears
- being that an equitable mortgage is something less than a mortgage that passes an estate in
the land. Therefore, what then is an equitable mortgage - is it only one that is not registered?
North Vancouver (District) v. Carlisle
- Borrower argued that the mortgage was not a transfer of any legal estate, but only
created a charge b/c of language in Land Registry Act (similar to BC LTA
- The mortgage in question expressly conveyed legal title and Act does not limit a
mortgage to only charging land.
- After the 1921 Land Registry Act, s.231 (3) of LTA was enacted – legislature was
trying to make clear that mortgage acted as a charge but that all remedies were
available to lender, but not successful in making this clear.
2 significant implications of problem if mortgage acts as conveyance of land:
(1) Fundamental principle that you cannot give what you do not have “nemo
dat” – if mortgage is a transfer, there is nothing left to give away on land
(not able to lease land or get 2nd mortgage except with permission of
(2) LTA provision where a transfer of land held in joint tenancy (special
creature) severs the joint tenancy (interest of JTs automatically devolves to
surviving JT) and interest becomes a tenancy in common (interest in land
is personal to each and follows their estate), which causes a number of
(ii) Land Title Act s. 231- Effect of a Mortgage
(1) A mortgage operates as a charge on the land of the mortgagor to secure
payment of the debt or performance of an obligation expressed in it,
whether or not the mortgage contains words of transfer or charge
(2) The mortgagor and mortgagee are entitled to all the legal and equitable
rights and remedies that would be available if they had expressly
transferred the mortgagor’s interest in the land to the mortgagee.
(3) These sections don’t change the law of mortgages
4. Elements of a Mortgage
(i) Legal Mortgage
(a) Land Title Act
A Legal Mortgage is a conveyance of land as security for the payment of a debt or
the discharge of some other obligation with the security (i.e. the land) being
redeemable upon payment of the debt or discharge of the obligation
So in a Legal Mortgage a legal estate in land is transferred to the lender, and this
is evident because legal mortgages are created by actual words of transfer or
grant. BUT this estate is subject to the borrower’s right of redemption (i.e. right
In essence a Legal Mortgage has TWO ASPECTS:
(1) A personal covenant by the borrower and (2) a conveyance in land.
s. 224 LTA
“terms” includes covenants, conditions, representations, warranties, grants and
s. 225 LTA
Legal mortgages take form in two parts:
PART ONE consists of the prescribed form that is called the Form B, which contains
basic information such as: the parties, the legal description of the mortgaged land
etc…this is basically a registration document.
PART TWO consists of the actual terms of the mortgage. These terms can be one of
three different types:
1. Prescribed (see Section 227 LTA): Now these are standard mortgage terms prescribed
by the government. Mortgagees can adopt these prescribed standard mortgage terms by
simply stating so in the Form B.
2. Filed standard mortgage terms (see Section 228 LTA): Now these are standard
mortgage terms that have been created by different financial institutions as their standard
form and they are subject to strict rules of format as set out in Section 228. These
mortgage terms are approved and filed at the LTO and the financial institutions can adopt
these for each of their mortgages by stating so in the Form B.
3. Express mortgage terms: These are mortgage terms that are actually attached to the
Form B as an express Part Two. These are used for unique mortgage transactions that
require specific terms.
So the two parts of the mortgage and the actual contract that gave rise to the
mortgage transaction make up in total all of the evidence of the mortgage
s. 229 LTA - Requires that the borrower receive a full copy of any filed standard
mortgage terms. The mortgagee must obtain an acknowledgement of such receipt and if
they do not then the prescribed mortgage terms govern.
s.239 LTA - States that a floating charge on land must not be registered unless it is part of
a specific mortgage.
Types of Legal Mortgages
1. Conventional Mortgages: Mortgages, which at most secure up to 75% of the
value of the property.
2. High Ratio Mortgages: These are mortgages that secure up to 95% of the value
of the property and are guaranteed by institutions such as the Canada Housing
and Mortgage Corporation.
3. Collateral Mortgages: These are mortgages that are collateral to another
obligation i.e. a mortgage granted to secure a promissory note.
4. Vendor Take Back Mortgages: These are mortgages granted by the actual
vendor of a property who gives financing to the purchaser and takes back a
mortgage to secure the purchase price.
(ii) Equitable Mortgage
(a) Land Title Act
s. 33 LTA - equitable mortgages are not registrable.
An Equitable Mortgage is a contract, which creates in equity a charge on the property,
but does not pass legal estate.
o An equitable mortgage is NOT registerable
o Can be formed in one of three ways:
o Mortgage of a future interest i.e. second mortgage, can actually be
registered, and can have 3rd, 4th…
o An instrument not sufficient to convey title ex. Evidence of an intention to
put up security for that loan, enforceable but creditor is unsecured.
o By the deposit of the duplicate certificate of title
1. Confirms who the registered owner is and charges
registered. Nothing can happen on title if this duplicate has
been issued. Only way to unfreeze is to return the duplicate
to the LTO.
2. At CL, there was a presumption that handing over the
duplicate certificate meant that there was an equitable
mortgage. BUT Royal Bank tells us that this presumption
does NOT exist in BC.
o All of the courts look for other evidence to show the intention to create an
Royal Bank of Canada v. Mesa Estates – BC CASE
- Contest of priorities betw the appellant, the RBC (now a judgment creditor)
claiming to hold an unregistered equitable mortgage of certain property AND the
respondents Bank of BC and BMO as judgment creditors holding judgments
registered against the title to the same property.
- Mesa Estates by certain agrmts, granted the duplicate certificate of title to the
property to RBC – RBC claims that this constitutes an equitable mortgage.
- Agrmts state that it was the intention of the parties that the duplicate certificate of
title serve “as security” for their debt.
- Merely having the duplicate certificate of title does not constitute an equitable
mortgage in BC. It could mean any of the following, depending on the intention
of the parties:
a. For safekeeping;
b. As security for an undertaking not to sell or mortgage the land until an
obligation with the bank is met; or
c. To charge the land in favour of the bank, by way of equitable
mortgage, as security for the performance of an obligation to the bank.
- There was insufficient evidence here that showed the parties intention that this
constituted an equitable mortgage.
- Documents must make it clear that the parties intended to charge the land by way
of equitable mortgage (no mention of charge, bank was said to be merely
“holding” the certificate).
- “In equity, a mortgage is created by a contract evidenced in writing for valuable
consideration to execute, when required, a legal mortgage, or by a contract so
evidenced and for valuable consideration that certain property is to stand as
security for a certain sum.”
- RBC appeal dismissed.
NOTE: Yeulet v. Matthews determined that equitable mortgages have priority over
subsequently registered judgments based on the principle that a judgment creditor takes
priority subject to all charges and equities.
North West Trust Co. v. West – ALBERTA CASE – watch out!
- TJ found that no equitable mortgage had been created
- Appellant sought declaration of money owing under an alleged equitable
mortgage, and in default of payments, an order for foreclosure and sale.
- Issue = Does a lodgement of title agrmt accompanying the deposit of a duplicate
certificate of title by a debtor with his creditor, raise a presumption/inference of
an equitable mortgage?
- West and his company executed three separate mortgages in favour of North
West, each one fell into arrears, so he and his wife took out loans from North
West secured with promissory notes and the duplicate certificate of title to a
fourth property along with a lodgement of title agrmt.
- Wests eventually defaulted on their obligations under the promissory notes.
- The agrmt contained no wording stating that the lands were charged or agreed to
be charged thereby in the future (just like in Mesa Estates).
- Judge finds that Alberta will not adopt the law in BC – there is a presumption of
an equitable mortgage when the duplicate certificate of title is deposited with a
- Court found that there was an equitable mortgage here – appeal allowed.
(iii) Common Elements
Equity of Redemption
o A right possessed by the mortgagor upon payment of the mortgage to regain legal
title to the property.
o “Second mortgage” = occurs when the mortgagor sells their right of redemption
o Can be extinguished by lapse of time, court order and sale of property, or by sale
under a contractual power of sale (not in BC though)
o In BC the right of redemption is so paramount that the court will not permit the
self-enforcement of the sale by the mortgagee (Power of Sale), it must be
determined in court.
o Details: This is an interest in the land, which can be conveyed or mortgaged.
o This interest arises on the making of the mortgage, but cannot be exercised until
the contractual rights have expired.
o The equity of redemption cannot be contracted out of (Exception: with a QUICK
CLAIM DEED which is a transfer of title without any covenants in it to give the
mortgagee title when mortgagor has no hope to redeem)¡ this will not include the
right of redemption and the courts are OK with this).
o The equity of redemption must be free of any conditions that would prevent the
redemption (courts would find such conditions void).
In dealing with mortgages the Courts of Equity have adopted the maxim that once a
mortgage always a mortgage and the principles that have flowed from this maxim are:
1. If a transaction is found to be mortgage than it must always be treated
as a mortgage and nothing but a mortgage. Court will look at substance
rather than form.
2. The mortgagee cannot stipulate for a collateral advantage, which would
make the interest on the loan excessive.
3. Mortgage cannot be made irredeemable and any condition or stipulation
that clogs the equity of redemption is unenforceable. Basically
mortgage must be redeemable at some point and right of redemption
cannot be illusory.
HOWEVER, the fact that mortgage cannot be redeemed for long time not enough to
make mortgage unenforceable, Knightsbridge addresses this.
Knightsbridge Estates Trust v. Byrne
- Knight company (resp) agreed with the Royal Liver Friendly Society for a
mortgage of 310,000 pounds at 5-¼ % over 40 years.
- Six years later, the resp tried to redeem on full payment, despite a provision of the
contract that only allowed mortgagor to redeem after a 40-year period.
- Resp claimed that the postponement period prevented them from redeeming the
mortgage at any time upon proper payment of principal and interest and was thus
illegal and void as a clog on their right to redeem. Further, it rendered the
mortgage irredeemable for an undue length of time.
- Court does not want to interfere with the freedom of contract – court won’t save
you from a “bad deal” by imposing a restriction on parties to set a reasonable
postponement period (if you have such a period).
- This agrmt was betw to experienced companies, and the resp had an interest at
time of a mortgage that would provide a long period in order to pay it off.
- There is no rule in law or equity that a postponement of the contractual right of
redemption is only permissible for a reasonable time.
- It is true that after the contractual date of redemption has passed, the mortgagee
cannot restrict the mortgagor’s right to redemption, also if the right seems
illusory, the court will step in.
- Court interfere with the mortgage in two instances:
b. If the essential requirements of a mortgage transaction have not been
c. If the terms are oppressive or unconscionable (length of time for redemption
may be an issue here, but not in the circs of this case).
- Because mortgage had been commercially viable made by persons with equal
bargaining power this mortgage not irredeemable there is no rule of equity that
where the period of postponement is lengthy, it is ipso facto unreasonable, and
- Appeal allowed
(b) Collateral Advantage
Collateral advantage is acceptable provided that:
2. Advantage is not unfair or unconscionable.
3. Not a penalty or clog on redemption.
Examples of collateral advantage are:
1. Participation interest in business that is in addition to interest.
(d) Clog on Equity – You cannot prevent borrower from eventually
getting the property back. Basically any stipulation or penalty
that clogs the equity of redemption or is repugnant to it is void
(so the Mortgagor cannot be prevented from eventually getting
the property back).
Situations not seen as clogs:
1. Mortgagees have been allowed to take a right of first refusal. This is just a right to
match an offer and courts have generally not seen this as repugnant to the right of
Situations seen as clogs:
1. Options of purchase have been seen as clogs. In some cases the courts have accepted
them if option is part of larger commercial transaction. But, by and large if option to
purchase is taken by a mortgagee is hard to enforce.
2. Quick deed if given at the time of a mortgage would inevitably be seen as a clog.
(iv) Implied Covenants
(a) Land Transfer Form Act Part III
The LTFA is something to be aware of, if a mortgage is made pursuant to this act; you
have to check the act to make sure there isn’t a short form for each part. The act is set up
so that it names short forms, which you can adopt in your mortgage, the long/full
versions of which are written in full in the act – so make sure you check it!
(b) LTA s.225
Discussed at page 32 determines the two part form that all legal mortgages in BC will
(c) Power of Sale – Foreclosure
In all mortgages there is the implied covenant that if the mortgagee goes into
default the mortgagor can foreclose on the property and that the mortgagor has a
power of sale to dispose of the property.
Result of a foreclosure is that the property will be transferred to the mortgagee or
purchaser of the property and this transfer will be free from claims and interests of
the mortgagor and any subsequent charge holders who are joined in the
A mortgagor in this situation has both common law remedies and contractual
remedies in order to foreclose.
Note that this power of sale is tempered by the borrower’s right of redemption.
3. Statutory Protections - These are statutory protections put in place to protect
(a) Mortgage Brokers Act Part II
Mortgage Brokers Act Part 2
Contains different disclosure requirements that in general ensure that mortgage
brokers are passing along adequate information about mortgage transactions to the
borrower and investors and lenders.
For the borrower the aim of the legislation is to ensure that they are aware of all
the costs involved with their transaction.
There is also provision for a 48 hour cooling off period, i.e. the borrower has 48
hours after he/she signs the mortgage or receives the disclosure statement to get
out of the mortgage. See Section 16 (3).
The court also has one month to permit a redemption if the disclosure
requirements have not been met. See Section 17 (1).
(b) Consumer Protection Act (repealed) Part V
Consumer Protection Act Part 5
The provisions of this Act allow the court to relieve against unconscionable
Section 59 sets out that the burden of proof that a transaction is not
unconscionable is on the Lender.
Section 60 sets out the indicia of unconscionability. For example:
o Debtor subject to undue pressure by the lender.
o Debtor taken advantage of by the lender due to some inability or
incapacity on the Debtor’s part to protect their own interests.
o At time of the mortgage there is no reasonable probability of full payment
of the monthly or periodic payments of principal and interest.
Section 61 sets out the power of the court to deal with unconscionable mortgage
transactions, powers that include:
o Revisiting the transaction
o Re-account between the borrower and lender.
o Order repayment form the lender.
o Set aside the agreement.
o Suspend the rights and obligations of the parties to the mortgage
(a) Interest Act s. 10
Interest Act s. 10
o If a mortgage is for a term exceeding five years, during the fifth year you can pay
off the whole thing and only pay three interest (that’s the only penalty)
o Does not apply to corporations.
o Act mentions paying the 3 months’ interest “in lieu of notice” but nothing turns
on this – act has been interpreted to mean that you have no choice but to pay the 3
o Public policy intention to permit public, at least every five years, to pay off their
mortgage w/o penalties
Potash v. Royal Trust Co.
- Royal (mortgagee) and Potash (mortgagor) have mortgages w/r/t two residential
- Each renewal of the mortgages was made on a standard form, and each renewal
carried with it a higher rate of interest than did the mortgage.
- Renewals gave Potash the right annually to prepay 10% of the principal amount
of the renewed loan.
- At one point during the second renewal, Potash attempted to tender the entire
principal amounts due on each mortgage plus interest for three months. Royal
refused to accept.
- Potash argued as per Mortgage Act, that more than five years had expired since
the date of the mortgage, thus he was entitled to redeem and pay 3 months interest
in lieu of notice.
- TJ found that through the renewal agrmts, Potash had contracted out of the
- On appeal, court reversed, finding that “date of mortgage” meant the dates of the
original mortgages and therefore the right of prepayment was applicable and
found that it was not possible to contract out of this right.
- Court finds that it has no trouble interpreting the word “mortgage”, in the case of
a renewal to mean the mortgage as amended, and the words “date of mortgage” as
date of the mortgage as amended.
- The prepayment right only applies to individuals, not corporations.
- You cannot contract out of the prepayment right in the Mortgage Act as a matter
of public interest.
- Appeal allowed.
NOTES on Interest Act s. 10:
The purpose of s10 (1) of the Interest Act is to ensure that mortgagors have the
right to pay off their mortgage at the end of each five-year period. They cannot be
locked in for more than five years
Where the original term of a mortgage exceeds five years, the mortgagor has the
right to pay it off at the end of the five years in compliance with Section 10.
Where the original term of the mortgage is for five years or less and the term is
extended by agreement beyond the five-year period (the date of the mortgage
remaining unchanged), the mortgagor has the right to pay if off at the end of five
Where a mortgagor elects not to exercise his right under s10 (1) but instead enters
into an otherwise valid and enforceable renewal agreement which deems the date
of the original mortgage to be the date of maturity of the existing loan, and the
term of the renewal agreement does not extend itself exceed five years, he cannot
pay off the mortgage until the end of the five year renewal period.
When a mortgagor makes a conscious decision on the basis of the full statutory
right to repay at the end of the five-year period not to do so, he does not contract
out of or waive his statutory right. He simply decides not to exercise it. If,
however, he purports in a mortgage or renewal agreement to relinquish his right to
pay off the mortgage at the end of any given five-year period, such a provision
could not be enforced against him at the instance of the mortgage. He would be
free to pay off the mortgage on compliance with the statute
(b) Interest Act s. 6, 7, 8, 9
Interest Act s. 6
Essentially requires a disclosure at a certain interest rate for blended payments
(i.e. payments which combine both principal and interest). So s.6 requires an
annual interest rate to be stated if there are combined payments. The EFFECT of
Section 6 is quite dramatic because if you do not disclose you do not receive any
Interest Act s. 7
Essentially the rate shown in Section 6 is the maximum rate payable.
Interest Act s. 8
Interest after default cannot be more than interest before default (keeps
unscrupulous lenders from forcing foreclosure).
Interest Act. S. 9
Allows one to recover any overcharge made in contravention of the sections
Re: Weirdale Investments Ltd. v. CIBC
- Issue = whether provisions in the contract, which provide for waiver of interst
upon prompt payment of the principal but otherwise create an obligation to pay
interest at 10 % constitutes a violation of the Interest Act’s prohibition of
penalties. Note: the amount of interest at all times in the contract was 10 %.
- It is argued that the ability of the mortgagor to waive its interest upon prompt
payment of the principal on the due date constitutes a collateral advantage i.e. a
benefit and not a penalty, conferred by contract to induce prompt payment of
- Even though this is a benefit, it still technically violates the Interest Act
Raintree Financial Ltd. v. Bell
- Mr. Bell grants mortgage to Raintree, it is the second mortgage on the property
- Interest clause stated that the interest would be 18 % per annum until a certain
date, and then it would change and forever be 24 % per annum.
- Does this violate the Interest Act?
- Section 8(2) of Interest act provides that so long as the rate of interest on arrears is
not greater than the rate of interest on principal money not in arrears, the
provision is not prohibited.
- Thus, this clause does not on the face of it violate the section, because the date
that the interest was subject to change was one week before redemption – no rate
of interest higher after arrears than before.
- MUST make the distinction between interest provision which are intended to
extract a higher rate of interest in the event of default and interest provisions
which have a legitimate commercial purpose
- So if there is a LEGITIMATE COMMERCIAL PURPOSE than not a violation
- Lenders will always see ensuring prompt payment of loan a legitimate
commercial purpose so not must certainty in this test
(c) Criminal Code s. 347
s. 347 (1) Notwithstanding any Act of Parliament, every one who
a. Enters into an agreement or arrangement to receive interest at a
criminal rate, or
b. Receives a payment or partial payment of interest at a criminal
Is guilty of either a summary or indictable offence
This section creates two offences:
o Entering into an agrmt or arrangement to receive interest at a criminal rate
o Receiving a payment or partial payment at a criminal rate (Usually most
offences come from this category)
Criminal rate is defined as an effective yearly rate that exceeds 60% of the credit
advanced, 60% of what was actually given to borrower. Commercial lenders under
commercial transactions can be unwittingly caught if there are bonuses, high-risk loan
There is confusion in the cases as to what happens to the security for conventional
lenders, there are 4 possibilities (hard to tell where courts will come down on):
Inability for lender to collect anything. This is most draconian result but courts
have left this open as a possibility.
Receive the principle sum but no additional interest
Recovery of principle sum and interest (at specified rate or court order interest
Court will give you the principle and interest but only up to legal rate of 60%
Garland v. Consumers Gas
- Resp (Gas) has rates of payment governed by the Ontario Energy Board, bills its
customers on a monthly basis and each bill includes a “due date.”
- Customers who fail to pay on time incur a penalty calculated at 5 % of the unpaid
- Appl argued that under the normal billing plan, the late payment plan (LPP), gives
rise to an interest rate of 60 % per annum.
- Section 347(1)(a) makes it illegal to enter into an agreement or arrangement to
receive interest at a criminal rate – it should be narrowly construed – if the agrmt
or arrangement permits the payment of interest at a criminal rate, but does not
require it, there is no violation of the section.
- Customers here are not required to pay a criminal rate of interest, thus s. 347(1)(a)
is not violated.
- Section 347(1)(b) makes it illegal to receive a payment or partial payment of
interest at a criminal rate – it should be construed broadly – going to calculate
interest as of the actual time that the amount is outstanding, and there will be no
violation of this section where a payment of interest at a criminal rate arises from
a voluntary act of the debtor, that is, one which is wholly w/in the control of the
- Customers were never required to pay late, and especially not the 38 days late that
would be required in order to exceed 60% interest rate.
- However, court interpreted this interest rate to constitute a penalty b/c it found
that eventually all the customers would at some point pay over 60% per annum,
thus it was not considered to be a voluntary case as with Nelson.
Nelson v. CTC Mortgage Corporation
- Mortgage betw Nationwide Auto and CTC Mortgage Corp, with Mr. and Mrs
Nelson as guarantors
- If they had let the mortgage run its course, they would have had to pay 52% per
annum, but if they prepaid early the rate of interest would be 82% per annum.
- This may be an excessive rate of interest, but the plaintiffs were partially
reimbursed, however, b/c the plaintiffs had played a role in the excessive interest
rate it was not criminally excessive.
- The point of the Criminal Code section is to make it illegal to have contracts that
require criminal rates. If the borrower chooses to pay early, he can’t argue about
now being subject to a criminal interest rate, if he wouldn’t have been subject if
he had waited to pay. Incurring the criminal rate was voluntary.
5. Mortgage Funding Process
o Special promise lawyer can give and if in breach accountable to Law Society
(disbarred) and person who took undertaking for can sue (completely binding)
o Ex. Vendor’s Lawyer gives Purchaser transfer for new house. Purchaser’s Lawyer
takes transfer and says accept this to use only when Purchaser says everything is
OK. Purchaser takes money to LTO where stamped and Bank gives LTO new
mortgage for Purchaser on property. Vendor’s and Purchaser’s mortgage on title
at LTO. Give Purchaser’s Lawyer all money on undertaking to give to Vendor’s
Lawyer his undertaking and pays off Vendor’s bank who discharges mortgage and
o News: Mark Wieric acted for developer Gill who built properties. W when got
money from Ps would get undertaking but then not pay bank. When Purchasers
Lawyers not see discharge, W made excuses. Question of whether Bar should take
responsibility for W. Law Society currently instituting a fidelity insurance
program whereby Lawyers would charge clients $30-50 which would go to LS to
pay off innocent Purchasers and build up reserves for future. But this does not fix
root of problem (not discourage corruption among Lawyers if reserve fund).
Lawyers still only paid $500 for RE deal and must bear all the risk unlike REA
who are protected by the REA.
B/c of the special aspects of mortgages, there are specific rules of court that apply
You must start a foreclosure action by PETITION
The lender must claim 2 things:
o to enforce the personal covenant or pay the debt (Statement of Claim_
o rights over the property (Originating Petition)
In the first instance, the lender gets an ORDER NISI (preliminary order), which
sets out the debt amount, interest rates and redemption period (B gets 6 month or
some other amount of time to redeem the property)
W/in the order nisi, the lender asks for an ORDER FOR SALE b/c at some point
if the B does not do something about the debt, the only thing the lender can do to
get his money back is to sell the property.
At the time of the application for the order nisi, the lender must inform the other
parties affected by the foreclosure action and petition (2nd and 3rd Ls) and they are
usually given right to speak in court, and notice must be given to tenants and any
guarantors of the mortgage.
At the end of the redemption period, the lender is within his rights to ask for an
At the hearing the lender must ask for 1 of 2 things:
o Possession/This is order absolute: To take title and become owner – but
if he does this he must give up personal covenant.
o Power of sale: Enforce the order of sale and get conduct for sale – hires
real estate agent to sell land and get courts’ authority to sell it. Here, the
lender is essentially giving up the right to title to the land.
When the lender gets an offer, he must take it to court and get the courts’
The sale completes and the money goes first to the lender and 2nd to the borrower
(if any left) and if other mortgage on title, they are paid in the order of priority (if
not enough money the 3rd mortgagee may be out of luck). Deficiency goes to
(i) Assignment of Mortgage
Originally under CL, it was not permissible for a creditor to assign a debt
Equity allowed it and now it is codified:
o S. 36 Law and Equity Act says:
Assignment must be a) absolute, b) in writing, c) there must
be notice to the debtor, and d) assignment must be made
subject to existing “equities” (whatever the status of your
accounts are as betw the parties involved at the time moves
w/ the assignment).
o S. 209 LTA
The transfer of a mortgage must be in a prescribed form
and that transfer effectively transfers the benefit of
collateral securities and the right to demand and sue and
enforce all of the covenants and its rights under the
Debtor can only transfer the right to redeem
At CL, if you transferred a mortgage, you were still responsible/liable for
the payment of the debt.
Property Law Act s.21, 22, 23 and 24 – all about giving protection to the
PLA s. 21
o In every instrument that transfers a fee simple property in BC that is
subject to a mortgage there is an implied covenant that the transferee
promises to the transferor that she will make payments under the mortgage
and indemnify the transferor for all the payments that are under the
PLA s. 22 – direct action against the current owner
o A person who is liable, or req’d to indemnify the person who is liable, is
entitled to recover the amount of his or her liability from the current
PLA s. 23 – Gives way for liability of borrower to be extinguished (In all
practicality, banks will never let this happen)
o Applies to residential mortgages only
o A person ceases to be liable under their personal covenants, unless the
mortgagee w/in three months of the end of the term of the mortgage gives
notice to the mortgagor making a demand for the mortgage amount.
o If there is a renewal of the mortgage w/ a new mortgagor and mortgagee,
original mortgagor ceases being personally liable
PLA s. 24
o No personal liability for the original mortgagor if the new purchaser is
approved by the mortgagee (only w/ residential mortgages)
PLA s. 31 – does away with the Doctrine of Consolidation
o If I have five properties and five separate mortgages for each w/ the Royal
Bank, then I can pay off any one of those to get a discharge w/o paying all
of them (you can contract out of this, Bank wants to force your payments
so it consolidates your mortgages).
Novation = when a new contract replaces an old contract. In this situation the
borrower under the old contract is absolved of liability under the old contract.
(Another way for the borrower to try to get out of his obligations)
Criteria for novation:
(d) New debtor must assume complete liability of the debt
(e) Creditor must accept new debtor as principal debtor not as a guarantor
(f) Creditor must accept new contract in full substitution of the old one.
Prospect Mortgage v. Van-5 Development Ltd.
- Prospect had a mortgage with Van-5 to which several shareholders signed as
covenantors to the mortgage.
- Van-5 later sold the property to X and W who entered into a modified extension
of the mortgage, property was then sold on again.
- Prospect sold the property upon foreclosure and the proceeds covered the first
mortgage, but only part of the second, leaving a large deficiency.
- Prospect makes application for personal judgment agst 3 shareholders of Van-5 to
- The application was dismissed b/c court found that the liability of the covenantors
was discharged when Prospect entered into a modification and extension of the
mortgage agrmt with X and W.
- Covenantor in question had no knowledge of modification agreement to X and W
- Covenantors were never given notice of the sale of the property.
- Court found that covenantors (which are not guarantors) are not required to
receive notice by the mortgagee of a sale application
- Court distinguishes covenantors from guarantors:
- Guarantor = a secondary obligator, therefore he or she has no control over the
agrmt. If the agrmt is changed w/o his consent, he is released of his obligation.
- Covenantor = signs as a primary obligator, akin to a debtor, Prospect could go
after borrower and/or covenantors.
- Thus, covenantor cannot argue that they didn’t consent to the changes.
- At CL, novation contemplates (a) that the new debtor must assume complete
liability, (b) the creditor must accept the new debtor as the principal debtor, and
(c) the creditor must accept the new contract in full satisfaction of and in
substitution for the old contract so that the original debtor is discharged.
- Whether or not there is novation (a completely new contract) is a question of fact,
which depends upon the circs.
Financing agrmts are often modified – it is rarely considered whether or not
the modification constitutes a novation – but this could present problems.
(a) Land Title Act s. 28
s. 28 LTA
Two or more charges appear on the registry, they go in priority of the date and
time they where registered by the LTO and not the dates of execution.
S. 28 LTA is generally the rule, BUT:
You can say in the mortgage that it is subject to another instrument OR
You can have a priority agrmt betw lenders where they agree as to
which interest takes priority
Registered liens take priority over mortgages
If in some way, someone obtains a charge by fraud, then they will not be
permitted to take advantage of s. 28 LTA.
Under the Court Order Enforcement Act, judgments can be registered on title.
s. 27 LTA
Registration of a document is notice to the world of all the provisions of that
(b) Other Statutes
Hankin Furniture Industries v. Gill
- Forcing a sale, parties applied to court to see how the foreclosure proceeds would
be split (there were so many judgment holders that it became complex!)
- Court ordered that certain judgments creditors be paid before the RBC on its
- Mortgage itself stated that it was subject to the first three judgments, which were
registered prior to the mortgage. After mortgage, further judgments were
- Judgment creditors argue that Court Order Enforcement Act says that when a
judgement creditor forces the sale, the proceeds are to be split among all the judg
- Court strikes a midpoint = held that b/c of expectation of 1st 3 judgment creditors
that title was free and clear (and would not have to share), they should get paid off
first. Whereas, creditors a/f 1st three knew that the title was encumbered, so
should share whatever is left over pro rata.
- Priority depends on how the charges were registered:
1. If started by secured creditors (mortgagee), then LTA govern (distribute
proceeds of sale rateably amongst all execution creditors in order of
registration of judgments)
2. If started by judgment creditors, then COEA governs and creditors get
money in order of registration, but share proceeds equally (modifies LTA).
- Here, b/c judgment creditors registered b/f mortgagee, all judgment creditors take
priority over the mortgagee. Court lumps all 10 judgments together and pays them
first, then pays remainder to mortgagee.
- (Until decision is overruled, mortgagees should not give money until any
judgments are taken off title).
IN BC, there is no self-help remedy of Power of Sale, you must seek a remedy
through the courts. This is done by petition – basically suing on a debt and
claiming the land.
A mortgage is not only a charge on land, but also a PERSONAL COVENANT.
Meaning that if the bank sells your home (on foreclosure) for less than you
mortgaged it for, the bank can continue to come after you personally for the
The bank can get an order absolute.
o Order Absolute = where mortgagee takes the title to the property instead
of selling it upon foreclosure (if mortgagee seeks this method, he may not
go after the mortgagor for any deficiency).
Foreclosing Down = whether the lender chooses an order absolute or a sale, all
the charges (including the mortgage) and below are erased from the title. Thus
judgment creditors should be given notice of this.
Redeeming Up = mortgages subsequent to the 1st mortgage have a right to buy out
the prior mortgages b/c of they own the right to redeem.
Interim Period = time after signing agrmt but before closing.
(i) Vendor’s Obligations
To give title to property in the state s/he agreed to give it
o Usually title is agreed to be given free of encumbrances, except for
those specifically agreed to.
To give title the vendor must have title!
(a) Property Law Act
s. 4 PLA – Vendor must deliver registrable instrument
Vendor must deliver title in a form which can be registered under LTA
s. 5 PLA
Landlords are obligated to provide lease in registrable form (unless it is for a term
of less than three years)
s. 6 PLA = “nemo dat” – one cannot give that which one does not have to give.
Vendor or transferor must have the title, which they are purporting to transfer.
s. 7 PLA – legal description
Vendor must provide purchaser w/ description of land in registrable form
B. Land Transfer Form Act Schedule 2
LTA Form A – land transfer must be in this form and this form contains covenants
described in the LTFA. Implied Covenants:
(a) Covenant for free and clear
title – if your agrmt contains encumbrances, you must make these very
(b) Vendor has the right to convey
(c) Purchaser will have quiet
possession of the land (meaning no one will make a claim to the land prior
to the purchaser)
(c) LTA s.185, 186
s.185 LTA – Transfer of land must be in the prescribed form – i.e. Form A.
s. 186 LTA – Implied covenants
o Unless expressly excepted or qualified, a transfer is deemed:
o To be made under Part 1 of the LTFA
o To contain the forms of words contained in column 2 of the LTFA
o To be made by the transferor as covenantor with the transferee as
o It’s presumed that the transfer is in fee simple
o No need to contain express words of transfer
o If transfer contains an express condition or reservation, then it is
subject to that condition or reservation.
o Does not operate to transfer an estate greater than the estate in
respect of which the transferor is the registered owner
(ii) What Constitutes a Title Default?
- L is suing real estate broker for his deposit back on a transaction that he backed
- Hughes entered into interim agrmt with L to sell her property.
- L said he discovered there was an easement agst property that he did not agree to
- Court asks did the parties tender (= parties have produced or offered or delivered
everything they were required to in order to close) in other words, “Did everyone
come to the table having fulfilled his or her obligations?
- Hughes was relieved from its obligations when purchaser gave notice that he
would not close
- Court asks – was the easement one not considered by the agrmt and was its
existence enough to repudiate the agrmt?
- “Rescission is not available to a purchaser if the portion of the land affected by
want of title is comparatively trifling.”
- Sewer easement actually had an enhancing value b/c this was a septic area.
Caplan v. Coles
- Purchaser claims the $ 15, 000 deposit from vendor for proposed purchase of real
- Vendor counterclaims for damages for breach of contract
- Purchaser and Vendor entered into interim agrmt in writing said that if the
purchaser failed to complete the deposit would remain with the vendor.
- Purchaser later learned that the title was registered to a limited company and not
- Purchaser asked vendor about name issue, and venodor wanted to know if that
meant that he could get out of the deal. Purchaser took this to mean that vendor
wanted out, and he signed an interim agrmt to buy another property.
- Purchaser said that he requires strict compliance w/ contract
- Purchaser refused to close on the ground that the company named as transferor in
conveyance was not a party to the original agrmt, and claimed return of deposit.
Interim agreement: “The Owner … promises and agrees to complete the sale on
the terms and conditions set out above” and no mention of anyone else.
- In Real Estate trans, there is a principle of equity that both sides must be ready,
willing and able to complete transaction when day comes to complete.
- Purchaser was r/w/a since came w/ P$ and said willing as long as comply w/
- Vendor was not r/w/a since proper vendor in agrmt did not have instrument of
transfer as required under PLA and did not have title to property prior to transfer,
and, in addition, having good and marketable title is an implied covenant and
Vendor could not supply it. Therefore, Vendor breached and must return deposit.
- Under the agrmt and the PLA the Purchaser was entitled to a conveyance from the
vendor and to have the covenants deemed to be contained in the transfer to be the
covenants of the vendor and not of his company.
- S.6 of PLA says that the person who signs the contract of P & S as vendor must
have title to land in own name or transfer it into own name by time of completion
to effect transfer of property.
Under s. 16 of standard form agrmt, Risk remains w/ vendor until the date of completion
Lsyaght v. Edwards – once agrmt is executed, beneficial interest passes to purchaser, but
purchaser does not yet have control of the property until closing. So vendor becomes a
trustee of the property until the closing date.
2. Risk – Condition of Property
(i) Patent/Latent Defects
Gronau v. Schlamp Investments
- Plaintiff is a cabinet maker who owns his own business, def is an investor an
manager of certain apt blocks
- Plaintiff wanted to buy apt block as an investment, so met with def salesman who
provided plaintiff with financial statements covering rental receipts, as well as
general description of the plan of the block. But, said that plaintiff could not
inspect suites until after he made an offer to avoid disturbing the tenants.
- After a close look at the exterior of building, plaintiff made an offer of $92,000
subject to inspection. Def turned down this offer.
- After further inspection of exterior and being allowed to see some suites in
excellent condition and assumed the rest would be in similar condition, they
increased the offer to $ 95,000 and def accepted.
- Once sale was completed, plaintiff came to meet all the tenants and noticed that
the east wall of the building had a significant crack in it.
- Plaintiff hired structural engineer to come inspect. Many cracks were noted, and
it was obvious that the cracks had been covered up in some areas.
- Plaintiff wanted to rescind agrmt, but def claimed caveat emptor (buyer beware).
- Def actively took identical brick from planter and had the crack patched, contrary
to the advice of the engineer and put it up for sale when cover up finished.
- Cracking was so serious that engineers told plaintiff that the entire building would
require underpinning to the tune of $ 15, 750.
- Def knew this was a serious problem that could not be fixed by merely covering it
- Patent defects = such that are discoverable by inspection and ordinary vigilance
on the part of the purchaser. Vendor is under no duty to draw attention to these.
- Latent defects = such as would not be revealed by any inquiry which a purchaser
is in a position to make before entering into the contract for purchase. If the
vendor actively conceals these, then caveat emptor does not apply. Purchaser can
seek rescission and or compensation for damages.
- Before plaintiff can have the contract rescinded, after it has been duly completed,
he must establish that there was a warranty in the document, fraud or error in
- There was no warranty or contractual condition in the contract here.
- Error in Substantialibus = was the difference betw the kind of apartment block
the plaintiff was supposed to receive and what he actually received so great as to
constitute a failure of consideration? In other words, was the discrepancy so great
that it can be said that the purchaser would not have entered the contract if he had
known of the discrepancy?
- Court finds that the plaintiff received something completely different
than what he bargained for, and that the cost of complete underpinning was
not readily calculable and may have been completely uneconomical.
(i) Fraudulent misrep = making a representation while (a) absent an honest
belief, (b) that induces the contract, and (c) onus is on the party alleging
fraud to prove it. In Gronau it was held that a non-disclosure could
amount to fraud, especially if in order to deceive. (Lie, concealment, or
repression of relevant information).
(ii) Innocent misrep = making a representation negligently, while believing
that it is true, it is in fact false. Generally about matters outside the
terms of the contract. Usually opinion.
(iii) Error in Substantialibus = a grievous mistake going to the heart of the
contract, akin to a total failure of consideration. Ex. (below) Hyrsky –
the deficiency equalled almost ½ of the land purchases and what was left
was unsuitable for the purchaser’s intended purpose – the mistake was
so fundamental that the quality and very identity of the parcel of land
was significantly transformed.
Hyrsky v. Smith
- def (vendor) and plaintiffs (purchasers) entered agrmt of p and s for $ 4,700 to be
paid at $ 50.00/per mnth with interest at 6 %.
- Plaintiffs did not search the titled, nor did they instruct their solicitor to do so.
- Deed was registered in LTO. Parties agreed that where there was a discrepancy
as betw survey and deed, deed would prevail to show intentions of the parties.
- Almost four years after sale, purchaser learns that vendor did not have clear title
to northern portions of lands. Third party owned it and began building on it.
- Purchasers wish to rescind, and claim return of interest.
- Purchasers told vendors that they were purchasing for investment purposes and
wanted to create 17 subdivided lots (didn’t specifically say that part).
- Issue = was there an error in susbstantialibus, or was there a breach of an express
condition or warranty in the deed of conveyance?
- They contracted to sell land in the dimensions set out in the deed, and they land
which was sold was of significantly less proportions and it was not fit for the
purpose for which the purchaser bought it.
- Here court finds that error in Substantialibus means that a contract is subject to
rescission if the parties suffered from a common fundamental misapprehension as
to the facts, which went to the very root of the contract.
- Such an error occurred in this case in light of the fact that the land actually sold
was less than half of what was contracted for, and in light of the fact that the
vendor knew the purpose for which the purchaser bought the property – purchaser
Property Condition Disclosure Statement = a list of items – vendor can disclose
state of those items and should be included in the contract to become conditions
Entire Agrmt Clause = there are no obligations or representations outside of this
agrmt. Not enforceable in BC in standard contract form unless you have evidence
that it was brought to the attentions of the parties.
4. Time is of the Essence
(i) What does it mean?
“Time is of the Essence” = means that every time limit in the contract will be
Norfolk v. Aikens
- Appeal from decision granting plaintiff specific performance of an agrmt for p
and s and dismissing def claim for deposit which she asserts was forfeited under
the interim agrmt
- The residential deal was on the (then) standard form contract
- Agrmt stipulated that the land must be transferred free of all encumbrances, that
time was of the essence and if the purchase money was not paid on time the
vendor had the option of cancelling the agrmt and keeping the deposit as
- At the time of agrmt, land had a mortgage to MTC, in interim agrmt, vendor
offered a second mortgage to purchaser (aka a “take-back mortgage”).
- Purchaser had obtained some financing, and paid increase to deposit, but then
received notice that vendor (due to her spouse filing a certificate of pending
litigation on the land) would likely not be able to complete the transaction.
- Plaintiff informed vendor that he still wished to proceed with the sale.
- Vendor followed up by revoking its offer to provide financing and saying it will
not complete any of its obligations.
- Plaintiff starts action for specific performance. Vendor decides to go along with
everything and goes ahead with its obligations – provides transfer in fee-simple
and statement of adjustments – but does not discharge the 1st mortgage.
- On completion date, the vendor did not have clear title, and purchaser did not
have sufficient funds.
- Where neither party is ready, and able to close according to the terms of the
contract, time, although expressed as being of the essence, ceases to be.
- Because purchaser was not r/w/a on date of closing, he cannot succeed with
- Vendor does not get to keep deposit b/c she was also not r/w/a on date of
- One of the parties should have reinstated “time of the essence” and picked a new
reasonable date for closing
- If it is clear that a party is going to breach, innocent party must not actually tender
(i.e. hand over money) must just show that they are r/w/a in every way (i.e.
purchaser had to show that they had sufficient funds).
Time is of the essence can be waived by the actions of the parties in some circs.
Salama Enterprises v. Grewal
- Standard contract of p and s, purchaser needed all parcels of land, and vendor
agreed before he sold land that there would be a subdivision of it.
- One of the conditions was that the purchaser enters into binding agrmts with
certain neighbours to the property before a certain date
- Parties agreed in writing to postpone the closing date b/c there was a delay in
purchaser obtaining other agrmts.
- Purchaser further asked for an extension of one day, due to the same delays, but
the vendor refused. Vendor relied on words in clause that said “time was of the
- Purchasers sought specific performance and claimed that the vendor’s allowing an
extension, waived the terms “time of the essence.”
- Court says – extension of closing date does not in itself amount to a waiver of
“time is of the essence” you must also look at the surrounding circumstances. If it
appears that to insist on strict time limits would be unfair, then the court will not.
- Court felt that vendor had a duty to cooperate with subdivision, knowing that the
whole thing couldn’t close w/o it, it would be inequitable to rely on strict time
limits in the circs.
Ambassador Industries v. Kastens
- Lawyers (vendors) sent all docs for conveyance to purchaser’s lawyer but courier
arrived late (past closing time).
- There had been a written extension to contract completion date saying that all
terms of the original contract would remain.
- If a date passes w/o one of the parties taking any action, one of the parties must
set a new reasonable time limit date with notice to the other party and must
expressly re-instate the “time is of the essence” requirement.
- Here there was no notice – saying that the terms remain is insufficient to re-instate
the “time is of the essence” requirement.
(iii) Law & Equity Act s. 31 – Stipulation not of essence
Stipulations in contracts, as to time or otherwise, that are not deemed
to be or to have become of the essence of the contracts according to
the rules of equity, must receive the same construction and effect as
they would receive in equity.
if the court or equity does not deem a timing provision in a contract to be "of the essence" then
timing is to be treated as any reasonable time. So if there is a closing date and the contract is
silent as to time being of the essence or equity would rule that the contract does not show an
intention that the parties wanted time to be of the essence then the parties would only have to act
VI. THE COLLAPSING TRANSACTION
The act of tendering affirms the contract and tender is the threshold test for
obtaining specific performance.
Significance (and rules):
1) Presentation of everything required to complete on the day of closing – documents,
money, and everything else contract requires. Everything must be delivered in strict
compliance w/ contract. Must always tender!
2) Must be given directly to purchaser or vendor unless contract states otherwise.
3) Unless contract gives specific day, tender can be made up until 12am on closing day.
4) Everything must be completed properly – prove r/w/a.
Tender: technical legal term given to performance of obligation on closing:
1) Affirms contract is being completed. (Keeps contract alive).
2) Allows remedy of Specific Performance to be available
3) Best evidence of being r/w/a to complete
If vendor or purchaser does not accept repudiation and sues for SP, they must
TENDER on close if wish to succeed in action for SP.
Tender: show that you are r/w/a to complete at LTO (Purchaser has exact
amount of money and vendor has clear title).
Norfolk v. Aikens
- If it is clear that a party is going to breach, innocent party must not actually tender
(i.e. hand over money) must just show that they are r/w/a in every way (i.e.
purchaser had to show that they had sufficient funds).
- To get specific performance, the plaintiff had to show that he was r/w/a at the
time of the closing. Must be in a position to be able to tender at time of closing.
There are two types of Repudiation:
(a) Express/Direct OR (b) Indirect or implied by the
actions of the parties
Upon repudiation, the innocent party has three choices:
Accept the repudiation and treat the contract as terminated (seek no
Accept the repudiation and treat the contract as terminated, then sue for
Reject the repudiation and continue with your obligations under the
contract – must be r/w/a to close.
(iii) Property Law Act s. 37 – Damages for loss of bargain due to defective
A court may award damages for loss of a bargain against a person who
cannot perform a contract to dispose of land b/c of a defect in the
Shaw v. Greenland
- Plaintiffs seek specific performance of an agrmt of p and s
- Defs are vendors and Plaintiffs are purchasers – argmt made time of essence,
vendor had to present title free of encumbrances, and deposit could be forfeited to
vendor upon purchaser’s failure to pay w/in time limit.
- Vendors had mortgage on property that was never discharged.
- Purchaser had the appropriate funds on the completion date, but did not deliver
certain paper work until the date after completion
- Vendors decide that this means plaintiff was not r/w/a so treats the agrmt as
repudiated and holds the deposit.
- Neither were vendors r/w/a b/c they had not yet cleared the title.
- Where the cost of conveyance is to be borne by the purchaser it is for the
purchaser to prepare the transfer and it is for the vendor to be ready to execute it.
- Issue – what is the legal position when both sides are in breach of obligations
under a contract in which time is of the essence?
- As a matter of law, time ceases to be of the essence and either side can then give
to the other a notice to complete the transaction at a new time.
(iii) Forfeiture – one option upon collapsing deal is to claim the deposit
Hirst v. Moore
- H claims return of deposit after vendor accused of breaching contract
- H missed some instalment payments
- Vendor ends contract using clause, which stated that he could if any payments
- H asks for relief from forfeiture, vendor says NO I have a right to the deposit
- There was no language in contract to say that deposit was forfeitable to vendor.
Court says, therefore, we assume it must go back, also court says that vendor
ended the contract (doesn’t matter that termination was valid), court basically
saying you should have kept contract alive.
- No right to damages.
Look for forfeiture clause, if none, assume it goes back to purchaser – actions of parties
may off set this assumption.
General Rules on Deposits:
o Courts will relieve against a deposit considered a penalty where the amount is
o You can get damages beyond deposit unless contract says that deposit represents all
damages you can get.
o If vendor accepts breach and claims deposit, there is no further obligations under
o If not accepting the breach, must tender, if not accepting must give notice and
request deposit back.
(a) Specific Performance
Requirements for the Equitable Remedy of Specific Performance
Must be r/w/a
Must act quickly (i.e. be vigilant)
Contract must continue to exist and not be rescinded
Must have completed all your obligations as much as you can
Semelhago v. Paramadevan
- Appeal from award of damages to the purchaser for breach of contract of p and s
- Issue = the principles that apply in awarding damages in lieu of specific
- A plaintiff entitled to specific performance is allowed to elect damages in lieu.
- Vendor refused to close a trans for sale of residential property with the purchaser
and property was sold to third party
- Purchaser sued for specific performance, or alternatively, damages in lieu.
- After closing date, the property rose in value – if the closing date is from whence
we measure damages, then the purchaser would not recover the increase in the
value of the property.
- Also, purchaser, now had to remain living in his old house, of which the value had
also gone up significantly by the time of trial.
- At trial, purchaser was awarded the difference betw the price he agreed to pay for
the house, and the market price of the house at the date of the trial.
- Vendor says that this isn’t fair b/c purchaser not only gets to benefit from the
increase in value of the purchased home, but also of the increase in value of the
purchaser’s old home!
General principal of damages
- Damages are to be compensatory, the innocent party is to be placed, so far as
money can do so, in the same position as if the contract had been performed.
W/r/t contracts of sale, Sale of Goods Act says that damages should be calculated
from the time of the breach, except where to do so would be unfair in the
discretion of the court.
May not actually compensate
- Where we are dealing w/ an order for specific performance, it may not happen for
years after the breach, Therefore, the rationale that the innocent purchaser is fully
compensated, if provided w/ the amount of money that would purchase an asset of
the same value on the date of breach no longer applies b/c the value of the asset
may have changed greatly.
W/ Specific Performance the time of the breach isn’t until trial
- Also, a claim for specific performance actually revives the contract up until
judgment. So if one party repudiates the contract, and the other party decides not
to accept the repudiation and demand performance, the contract is revived and no
breach has yet occurred. Any time prior to judgment, the repudiating party can
avoid a breach and tender.
- Therefore damages should be assessed as at the time of trial (specifically the date
- This reasoning will only be overly generous in cases where it can be said that the
property is not unique. Thus, specific performance should not be granted as a
matter of course absent evidence that the property is unique to the extent that a
substitute would not be readily available.
(b) Retain Deposit – cannot be unconscionable to do so, must not be
liquidated damages, there must be some authority for the vendor
to retain it (i.e. wording in the contract).
Mavretic v. Bowman
- Issue = what date is applicable for the assessment of damages where the purchaser
is in breach of a contract for p and sale
- Vendors sold property to purchaser for $ 237,000 w/ a deposit for $ 10,000.
- Purchasers did not complete and vendors sued for damages for breach, or
alternatively specific performance.
- Property went up in value from the date of the breach to the date of trial. Vendors
did not re-list the property, but continued to live in it.
- A qualification on the principle of damages is that the plaintiff is not entitled to
recover losses, which he could have avoided by taking reasonable steps – he is,
obliged to mitigate his loss.
- Mitigation is not a factor here b/c the judge finds that there is no evidence to
support a finding that that the vendors re-listed the property and sold the property
w/in a reasonable amount of time, they would have reduced their loss.
- The fact that the value is higher at the trial date than at the completion date does
not constitute circs that should encourage deviation for the normal or usual
approach that damages be assessed at the date of the breach.
- Vendors entitled to damages as of date of breach, minus the amount of the
forfeited deposit that the contract stipulated would be absolutely forfeited as
damages if purchaser failed to complete.
(c) Vendor’s Lien – vendor can get a lien for the amount owing on
the purchase price and it can be registered against title.
Gordon v. Hipwell
- As payment in real estate trans, the purchaser Hipwell gave the vendor Gordon,
24 diamond rings.
- Diamonds had been brought into the country illegally and were seized from
Gordon by RCMP
- Gordon immediately registered a caveat against the property to halt any dealings
- Mrs. Hipwell had the caveat cancelled on grounds that the time for taking action
under it had expired.
- Mrs. Hipwell consequently sold the property on to a bona fide purchaser for
- Gordon sued Hipwells and AG for the Assurance Fund under the LTA on grounds
that under the LTA a caveat does not expire if it is lodged by a vendor as evidence
of an unpaid vendor’s lien (which never expires). LTO should have noted this
and thus violated the LTA.
- The right to an equitable lien is the right to a declaration of lien and an order for
sale. This right is transmissible on death and assignable inter vivos.
- The unpaid vendor’s lien exists whenever there are circs, which, if brought before
the court, would entitle the vendor to his declaration.
(d) Rescission – the unmaking of the contract.
The contract can be rescinded where there is:
o An error in Substantialibus
o An innocent pre-contractual misrepresentation or;
o A fraudulent misrepresentation
Court must always consider whether it would be fair to put the parties back in
their original positions
Parties can contract out of rescission
2. Purchaser – similar remedies as with vendor
(i) Return of Deposit – accepting breach of vendor and asking for return of
(ii) Specific Performance – must keep contract alive, tender.
(iii) Purchaser’s Lien – registrable as a caveat for amount of money paid
until title passes. Caveat = temporary and should be followed by a law
suit (registrable as a certificate of pending litigation)
For the convenience of the clients (so they don’t have to both meet and
swap at the LTO)
Problem in Norfolk – lawyers used undertakings when agrmt did not
provide for them. Judge says that when the lawyers’ actions unilaterally
amended the agrmt.
(1) A contract must contemplate the use of undertakings, AND
(2) You must ensure that your client understands the process, i.e. what
happens if their lawyer breaches the undertaking, how do they work, etc.
Making undertakings w/o the authority of the contract means you are in
breach and if you haven’t complied w/ (1) and (2) then you are also
liable in negligence.
Wieric – does the purchaser have any rights under the undertaking or
just his or her lawyer? This is relevant b/c if the purchaser did not also
have rights, s/he would have no recourse against the vendor to have the
Edward Wong Finance v. Johnson
- Lawyer is sued for using undertakings w/o consent.
- Lawyer claimed this was the industry practice
- Can’t use undertakings unless agreed to in the contract.
(ii) Preparing Documents
Generally, in BC, the purchaser bears the cost of the conveyance, and is thus
responsible for providing the relevant documents to the vendor.
In situations where the vendor does not yet have title, and must still obtain it, then
generally s/he is responsible for providing the documents.
Shaw v. Greenland
- Neither purchaser nor vendor were r/w/a at time of closing – purchaser had not
yet obtained the necessary documents, and the vendor had yet to get clear title.
- Where the cost of conveyance is to be borne by the purchaser it is for the
purchaser to prepare the transfer and it is for the vendor to be ready to execute it.
(a) Property Law Act s. 4-7 (see page 49)
VIII. POST COMPLETION
Merger = the merging of the lesser documents into the greater documents
The contract of p and s becomes subsumed into the completion documents on
closing and the conveyance takes over.
Most contracts include a clause that creates a survival of the former
reps/warranties. Standard form often states that all reps and warranties in the
contract of p and s survive the sale.
The completed contract is to be found in the deed/transfer.
Doctrine of merger: the reps in the contract are true while the contract is in force,
but on conveyance the contract is spent and only evidence is the conveyance. The
lesser contract (reps) is merged into the greater title and the reps are no longer
On close, all reps not on title are annihilated and all rights of parties are governed
by transfer (only remedies available are for breach of term of contract). (Certainty
in land trans.)
A/f completion, the only thing you have to show is deed or certificate of title – if
the deed does not have the same reps as those in contract, those reps in contract
merge in deed and are gone. Consequence: if vendor said that there was no
environment contamination in contract, but not in deed; if purchaser later finds
contamination, too bad b/c not in deed unless discovered this when contract still
However, with Property Condition Disclosure Statement if it is wrong parties do
have a cause of action.
In BC, there is no presumption of merger. Modern caselaw in BC says that the
ancient English doctrine does not always apply to all cases, therefore no
presumption automatically applies. BUT if purcahser wants to rely on a rep,
he/she must argue that there was an INTENTION THAT THE
REPRESENTATION WOULD SURVIVE.
If there are no environmental reps in deed, you may still have an action on rep. in
BC b/c no automatic merger but must argue that there was an intention to hold the
All contracts have a clause saying that all reps and warranties in agreement will
survive closing – reps flow into deed so as to avoid doctrine of merger.
Parties can contract out of doctrine of merger by expressly saying that all terms,
warranties, reps, etc.. will survive close, but problem is not many vendors will
agree to contract out of merger w/r/t numerous reps. SEE standard contract of p
Redican v. Nesbitt
- Defendants entered into a contract for p and s for a leasehold property from the
- Two days after the sale was closed, the defendants inspected the property (which
was their first opportunity to do so) and claimed that the property had been
misrepresented to them on several important fronts, by the agent for the plaintiff
- Defendants give notice, and repudiate the agrmt.
- Plaintiffs claim that the documents merged after closing and that any
representations or warranties are no longer valid, as the deed subsumes the
contract of p and s.
- At what stage does caveat emptor apply?
- After completion the purchaser may rely on warranty, contractual condition, error
in Substantialibus, or fraud.
- Affirmation of fact made for the purpose of influencing people in the trans of
business involves an affirmation of belief in the existence of the fact stated.
- You can rely on warranties/conditions or reps prior to closing, but only certain
circs says the court:
o There is no presumption that the deed is the final word in Canada, look at
the intentions of the parties – did then intend those specific terms to
survive the closing? The facts must disclose a common intention to merge
the warranty - absent this, there is no merger.
(a) Error in Substantialibus - Hyrsky v. Smith (see page 53)
Allen v. McCutcheon
- Plaintiffs claim rescission of agrmt whereby the defs agreed to sell and the
plaintiffs agreed to purchase the vendors’ leasehold interest in and to certain
property and alternatively from damages for fraudulent misrepresentation or
breach of warranty.
- Plaintiffs purchase leasehold beachfront property, and take possession.
- Def failed to disclose to plaintiffs the facts that: contrary to good building
practice, the house had no property foundations with the result that the house later
settled unevenly causing cracks in the walls, and sagging floors, that the BC
Hydro right of way easement extends much further into the property than what
was revealed, that the electric wiring system was defective and constituted a fire
hazard, that the septic tank and field were defective, that a portion of one outside
wall had no finishing coat. All of these defects constituted latent defects.
- The rule of caveat emptor does not apply where the vendor actively concealed the
latent defects (Gronau).
- The width of the easement was an intentional misrepresentation made recklessly
to induce the plaintiffs to purchase, without knowing or caring if it was true and
thus constitutes fraudulent misrepresentation.
- Plaintiffs are entitled to rescission in the circs.
(c) Collateral Obligations
Roberts v. Montex Development
- Plaintiff bought a suite in a 55-unit condo and complains that the transmission of
sound through the walls, ceiling and floor from adjoining suites has made it
almost intolerable as a dwelling
- Plaintiff was assured before purchasing by the real estate salesman that the
building ensured maximum soundproofing.
- Evidence of some tenants revealed that the sounds were ridiculously disturbing
and the court finds, that based on this evidence, the noise insulation provided did
not come up to the reasonable level to be expected in a “luxury condominium.”
- Brochure of the company stated that certain characteristics would be in places to
ensure maximum soundproofing, which were indeed not all present.
- An absence of honest belief is essential to constituted fraud - if a representator
honestly believes his statement to be true, he cannot be liable in deceit, no matter
how ill-advised, stupid, credulous, or even negligent he may have been.
- Were the agent’s statements and the statements in the brochure a warranty or a
- Collateral Warranty = a collateral undertaking (not expressly written in the
contract) forming part of the contract by agrmt of the parties express or implied,
and must be given during the course of the dealing which leads to the bargain, and
should then enter into the bargain as part of it.
- Statements were found to be warranties b/c – they were said to assert facts of
which the buyer was ignorant and not merely to state an opinion or judgment
upon a matter wherein the speaker had no special knowledge.
- She was entitled to damages.
(d) Entire Agrmt Clauses
Often a real estate contract will have a clause saying there are no warranties or
conditions other than those in this agreement. However, when used on standard
form contracts it has to be clear that this clause was brought to the attention of the
Courts in BC are reluctant to enforce entire agreement clauses in residential
standard form contracts unless evidence that it was clearly pointed out to
purchaser and that consequences of EAC explained to purchasers.
In commercial transactions, EACs are readily enforced by courts b/c parties
usually agree to them specifically.
If show negotiation, court infers that parties know what is in the contract. But if
standard form K is signed a/f speech by condo developer, court will not accept
(ii) Implied Covenants
(a) Title covenants LTA s. 185/186 (see page 50) and LTFA
TIPS for the exam: Identify the issues, Say why it is an issue, Give related law, Argue your position (please
take a position!!)