Real Estate Transactions CAN
INTRODUCTION .................................................................................................................................................................................. 3
Background: BC’s Torrens system ................................................................................................................................................................ 3
The “heart” of the Land Title Act: ss. 20 and 23 ........................................................................................................................................................ 3
The significance of ss. 20 and 23 in completing real estate transactions ...................................................................................................... 4
Other relevant sections of the LTA .................................................................................................................................................................................. 4
MARKETING THE PROPERTY ......................................................................................................................................................... 4
Listing Agreements ............................................................................................................................................................................................ 4
Requirement for a written Listing Agreement ........................................................................................................................................................... 4
Necessary elements of a Listing Agreement ............................................................................................................................................................... 4
Types of Listing Agreements .............................................................................................................................................................................................. 5
Licensing Requirement ..................................................................................................................................................................................... 5
Agents/brokers must be licensed under RESA to perform real estate services ......................................................................................... 5
Lawyers are exempt from the licensing requirement ............................................................................................................................................ 6
Punishment for contravening the licensing requirement ..................................................................................................................................... 6
An unlicensed person cannot recover remuneration ............................................................................................................................................. 6
Other mechanisms for discipline under RESA: the Real Estate Council.......................................................................................................... 6
Levels of licenses ..................................................................................................................................................................................................................... 7
Deposit Money & Agent Remuneration ...................................................................................................................................................... 7
Purpose of deposits ................................................................................................................................................................................................................ 7
An agent has a statutory duty to hold deposit money in trust ............................................................................................................................ 7
Three circumstances when an agent can touch deposit money ......................................................................................................................... 8
Triggers for remuneration .................................................................................................................................................................................................. 8
No right to remuneration .................................................................................................................................................................................................... 8
An agent must not accept/agree to remuneration based on difference b/w listing price and actual price ................................... 9
Summary of an Agent’s Duties........................................................................................................................................................................ 9
Principal-Agent Relationship ....................................................................................................................................................................... 10
Definition of an agent ......................................................................................................................................................................................................... 10
Agent’s duties to their principal .................................................................................................................................................................................... 10
Agent’s authority to delegate obligations to a sub-agent (MLS agreements) ........................................................................................... 12
Dual Agency......................................................................................................................................................................................................... 13
Agent’s Duties to Third Parties .................................................................................................................................................................... 13
THE CONTRACT OF PURCHASE AND SALE............................................................................................................................... 15
The Contract ....................................................................................................................................................................................................... 15
Standard Form ....................................................................................................................................................................................................................... 15
Letters of Intent & Enforceability ................................................................................................................................................................................. 16
Options/Rights of First Refusal ..................................................................................................................................................................................... 17
Problems with Real Estate Contracts ........................................................................................................................................................ 17
Evidentiary Problems: Statute of Frauds and s. 59 of the Law and Equity Act .......................................................................................... 17
The 3 Ps + Vagueness/Uncertainty .............................................................................................................................................................................. 18
Deposit .................................................................................................................................................................................................................. 20
Purpose & Legal Significance .......................................................................................................................................................................................... 20
Disputes about Deposits ................................................................................................................................................................................................... 20
Interim Period .................................................................................................................................................................................. 23
Relationship between Vendor/Purchaser ............................................................................................................................................... 23
Nature of the Purchaser’s Interest ............................................................................................................................................................. 24
Conditions ............................................................................................................................................................................................................ 24
Warranties/Representations ....................................................................................................................................................................... 27
Aboriginal Title ..................................................................................................................................................................................................................... 28
Environmental Issues ......................................................................................................................................................................................................... 29
Indemnities & Releases ..................................................................................................................................................................................................... 29
Hold Backs ............................................................................................................................................................................................................................... 29
Doctrine of Merger .............................................................................................................................................................................................................. 29
FINANCING THE PURCHASE.......................................................................................................................................................... 30
Mortgages ............................................................................................................................................................................................................ 30
Nature of a Mortgage .......................................................................................................................................................................................................... 30
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History of a Mortgage ......................................................................................................................................................................................................... 30
Mortgages in BC’s Torrens System ............................................................................................................................................................................... 30
Overview of a Mortgage .................................................................................................................................................................................................... 31
Elements of a Mortgage................................................................................................................................................................................... 31
Legal Mortgage ...................................................................................................................................................................................................................... 32
Equitable Mortgage ............................................................................................................................................................................................................. 33
Three Common Elements of Mortgages ..................................................................................................................................................................... 34
Implied Covenants ............................................................................................................................................................................................................... 35
Power of Sale – Foreclosure ............................................................................................................................................................................................ 35
Statutory Protections ...................................................................................................................................................................................... 35
Provincial Statutory Protections for Borrowers .................................................................................................................................................... 35
Federal Statutory Protections for Borrowers.......................................................................................................................................................... 37
Mortgage Funding Process ............................................................................................................................................................................ 41
Undertakings/Commitments........................................................................................................................................................................ 42
Undertakings by Purchaser’s Lawyer to Lender .................................................................................................................................................... 42
Undertakings by Vendor’s Lawyer to Purchaser ................................................................................................................................................... 42
Enforcement ....................................................................................................................................................................................................... 42
Assignment of Mortgage ................................................................................................................................................................................................... 43
Novation ................................................................................................................................................................................................................................... 43
Priority of charges ............................................................................................................................................................................................................... 44
Other registerable charges, which may affect priority ........................................................................................................................................ 44
Doctrine of Consolidation ................................................................................................................................................................................................. 44
DEFAULTS ........................................................................................................................................................................................... 45
“Ready, Willing, and Able to Complete” .................................................................................................................................................... 45
Title Default ........................................................................................................................................................................................................ 45
Vendor’s Obligations re: Title ......................................................................................................................................................................................... 45
What Constitutes a Title Default ................................................................................................................................................................................... 45
Risk & Condition of Property ........................................................................................................................................................................ 46
Who Bears the Risk During Interim Period .............................................................................................................................................................. 46
Patent & Latent Defects ..................................................................................................................................................................................................... 46
Misrepresentation ............................................................................................................................................................................................ 47
Time of the Essence .......................................................................................................................................................................................... 48
Time of the Essence can be waived .............................................................................................................................................................................. 48
Law and Equity Act, s. 31: equity will provide relief to time requirements unless otherwise stated ............................................. 49
COLLAPSING THE TRANSACTION ............................................................................................................................................... 50
Tender ................................................................................................................................................................................................................... 50
Repudiation......................................................................................................................................................................................................... 51
Summary of Remedies .................................................................................................................................................................................... 52
Specific Performance ....................................................................................................................................................................................... 53
Damages ............................................................................................................................................................................................................... 53
The Deposit: Return to the Purchaser, or Forfeiture to the Vendor .............................................................................................. 54
Liens ....................................................................................................................................................................................................................... 55
Rescission ............................................................................................................................................................................................................ 55
COMPLETION/CLOSING ................................................................................................................................................................. 55
Procedure ............................................................................................................................................................................................................ 55
The 6 Steps to Closing ........................................................................................................................................................................................................ 55
Undertakings Generally ..................................................................................................................................................................................................... 56
Purchaser’s Lawyer’s 4 Undertakings ........................................................................................................................................................................ 57
Vendor’s Lawyer’s 3 Undertakings .............................................................................................................................................................................. 57
Purchaser is responsible for preparing the transfer documents .................................................................................................................... 58
POST-COMPLETION ......................................................................................................................................................................... 58
The Doctrine of Merger................................................................................................................................................................................... 58
Collateral Obligations ......................................................................................................................................................................................................... 59
Implied Covenants ............................................................................................................................................................................................ 60
Warranty of Fitness (Habitability) ............................................................................................................................................................................... 60
Title Covenants...................................................................................................................................................................................................................... 60
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INTRODUCTION
Background: BC’s Torrens system
In BC, we have a modified Torrens system, which governs registered fee simple properties under the
Land Title Act. The essential element of the LTA is that the registry is king: title is indefeasible, meaning
that it cannot be defeated by a prior claim. If there is an error in the Land Title Office and people are
deprived of land because of the LTA, they may be entitled to compensation from the assurance fund.
The “heart” of the Land Title Act: ss. 20 and 23
Section 20 of the LTA provides that a document or instrument will not affect title unless that document
or instrument is registered. An unregistered contract will still bind the two parties who made it, e.g. an
agreement about an easement is enforceable as between the two parties to the agreement, even if the
agreement is not registered. However, an unregistered instrument will generally not affect third parties,
e.g. if the property affected by the easement is sold without the easement being registered, the easement
is no longer enforceable (reason: privity).
Section 23 of the LTA provides that title is indefeasible. Registered title is “conclusive evidence at law
and in equity, as against the Crown and all other persons” of the title that you are claiming (s. 23(2)).
However, under s. 23(2), indefeasible title is subject to a number of exceptions, which include:
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Exceptions to Crown Grant: s. 50 of Land Act provides that there are certain things the Crown
won’t give away, e.g. gold, oil, minerals, gravel etc. Section 23(2)(a) of Land Title Act provides that
a registered owner holds indefeasible title subject to these exceptions to the Crown grant.
Property taxes: taxes are a lien on the land that arises at the beginning of each year. However,
taxes are not an enforceable lien until you fail to pay your taxes on time. (s. 23(2)(b))
Some leases: whether or not a lease is registered, if that lease is for a term not exceeding 3 years
and if the tenant is in “actual occupation”, a registered owner holds indefeasible title subject to
that lease. (s. 23(2)(d))
Highways and public rights of way (s. 23(2)(e))
Expropriation: indefeasible title is subject to the right of a public agency (e.g. the City, BC Hydro,
Telus, BC Transit) to take/expropriate your interest for public use in exchange for compensation
under other acts, like BC’s Expropriation Act. (s. 23(2)(f))
Liens: different statutes can allow liens to arise, e.g. the Workers Compensation Act creates a lien
on all the assets of an employer who does not pay their assessment; the Strata Property Act gives a
strata the right to place a special lien on your property if you fail to pay monthly strata fees.
Wrong description of boundaries or parcels: indefeasible title is held subject to the right of a
person to show that all or a portion of the land is improperly included in title due to an error in
the description of the boundaries or parcels. (s. 23(2)(h))
Fraud: if you obtained title by fraud, you do not hold indefeasible title. (s. 23(2)(i))
*Important: s. 23 indefeasible title applies not only to land, but the ownership of charges (e.g. registered
mortgages), as well. Therefore, a lender with a registered mortgage will hold title to that mortgage
indefeasibly, subject to the exceptions set out in s. 23. Further, the lender’s priority with respect to other
interest holders will be governed by s. 28 of the Land Title Act, which provides that priority is based on
the time and date of registration. If a lender holds an unregistered (equitable) mortgage, s. 20 of the Land
Title Act suggests that that unregistered mortgage will not affect title vis-à-vis the world. However, Yeulet
stands for the proposition that an unregistered equitable mortgage may take priority over registered
judgments, depending on when the unregistered equitable mortgage arose.
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Section 23(3) provides that, after indefeasible title is registered, the registered owner cannot lose title to
another party due to adverse possession.
The significance of ss. 20 and 23 in completing real estate transactions
Sections 20 and 23 are the “heart” of the Land Title Act, and are integral to the functioning of our Torrens
system in BC. These sections facilitate the transfer of land between parties. The act of registering title (via
the Form A) has legal effect. Once property is registered in the purchaser’s name, the government
guarantees that their title is accurate and indefeasible – the purchaser’s title cannot be defeated, revoked,
or made void.
Other relevant sections of the LTA
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Section 27 tells us that registration of a document is notice to the world of the instrument that
you are registering. In other words, registration of a charge gives notice of that charge to every
person dealing with title.
Section 28 provides that priority of charges is based on their date/time of registration. This is
important where there are competing interests, e.g. more than one mortgage on the property.
Section 29 provides that an unregistered document, regardless of whether you knew about it, has
no affect on you unless you are involved in some fraud. Fraud is a very high standard to meet.
Section 33 of the LTA provides that an equitable mortgage cannot be registered. The LTA does not
recognize a split in legal and equitable ownership > title registration system assumes that there is
a single owner who owns both. But second (equitable) mortgages are registerable as charges.
MARKETING THE PROPERTY
Agents are governed by the BC Real Estate Services Act. This Act governs how agents are licensed, how
they must conduct themselves, and how they can be disciplined. However, the Act does not specify how
agents get paid or what their responsibilities are in terms of the kind of marketing they do > this is where
a Listing Agreement comes in.
Difference between “agents” and “brokers”: agents are involved in residential transactions, brokers are
involved in commercial transactions. But essentially the same thing.
If a vendor wishes to sell their property, they will typically enter into a Listing Agreement with an agent
to market their property. Less common for purchasers to enter into Purchaser’s Agreements with agents.
Listing Agreements
Requirement for a written Listing Agreement
Rule 5-1(1) of the Real Estate Council Rules provides that, unless this requirement is waived by the
prospective client, an agent (through its brokerage) must have a written service agreement if that agent is
providing real estate services. For trading services, Rule 5-1(2) provides that this service agreement must
be entered into “before the brokerage represents the client in offering the real estate for sale or other
disposition”. Under Rule 5-1(3), the service agreement must: be signed by the client; be signed by an
authorized signatory of the brokerage; and must clearly state all the agreement’s terms and conditions.
Necessary elements of a Listing Agreement
Rule 5-1(4) of the Real Estate Council Rules provides that a Listing Agreement must contain the following:
1. The name of the client and the licensee name of the brokerage
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2. A description of the property: the address of the real estate in relation to which services will be
provided under the Listing Agreement.
3. The term: how long the Listing Agreement will last, e.g. typically 6 months.
4. A general description of services to be provided: rights, powers, responsibilities of the agent
5. The commission/remuneration: “the trigger events” = how and when the commission will be
earned (e.g. on completion of the sale? by bringing in an offer), and the amount of the commission
(in residential context, typically 7% of first $100,000 and between 1-3% of remainder).
Rule 5-2 of the Real Estate Council Rules provides that a copy of the written Listing Agreement must be
delivered to the client immediately upon execution of the agreement.
Types of Listing Agreements
Exclusive Listing Agreement
Vendor hires one agent to the exclusion of all others. This means that the agent you hire is the only one
who has the right to sell the property, and you will pay them the commission no matter who is
responsible for sale. Most common in commercial context due to “trade secrets”.
Open/General Agreement
Vendor hires multiple agents and only pays commission to the agent who actually sells the property. Less
common.
Multiple Listings Service (MLS) Agreement
Vendor hires one “listing agent” who can in turn contract with other agents. The vendor pays the listing
agent the commission, but that listing agent must then share the commission with any other agent who
assisted them in the completion of the sale (e.g. the agent who brought the purchaser to see the property).
Most common in residential context.
Licensing Requirement
Agents/brokers must be licensed under RESA to perform real estate services
Section 3(1) of RESA provides that a person “must not provide real estate services to or on behalf of
another, for or in expectation of remuneration, unless the person is (a) licensed..., or (b) exempted… from
the requirement to be licensed”.
Section 1 of RESA defines “real estate services” as:
 rental property management services;
 strata management services; and,
 trading services;
Section 1 defines “trading services” as:
 advising on the appropriate price for real estate;
 making representations about the real estate;
 finding the real estate for a party to acquire;
 finding a party to acquire the real estate;
 showing the real estate;
 negotiating the price of the real estate or the terms of the trade in real estate;
 presenting offers to dispose of or acquire the real estate; and,
 receiving deposit money paid in respect of the real estate.
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Section 1 defines “remuneration” very broadly as: “any form of remuneration, including any
commission, fee, gain or reward, whether the remuneration is received, or is to be received, directly
or indirectly”.
The licensing requirement under s. 3(1) is strictly interpreted, e.g. if your licence expired one week ago,
you are deemed to be unlicensed.
Lawyers are exempt from the licensing requirement
Under s. 3(3)(f) of RESA, practicing lawyers can conduct real estate services without a licence “in the
course of the person’s practice”.
Punishment for contravening the licensing requirement
Section 119 of RESA sets out the penalties for committing various offences under the Act, set out in s. 118.
Under s. 119(2), an individual who commits one of the listed offences, including a violation of the s. 3
licensing requirement to provide real estate services, can be liable on first conviction to a fine up to
$50,000 and/or up to 2 years imprisonment, and on subsequent convictions to a fine up to $100,000
and/or up to 2 years imprisonment.
Note: if a vendor is stupid enough to pay an unlicensed person, there is nothing that they can do either.
An unlicensed person cannot recover remuneration
Section 4(1) of RESA provides that an unlicensed person cannot bring a claim for remuneration in
relation to real estate services, subject to the exception in s. 4(2) for a person who is licensed or
otherwise authorized to provide real estate services and “act in a capacity equivalent to that of a
brokerage under this Act” in another jurisdiction.
Section 1 of RESA defines “remuneration” very broadly as: “any form of remuneration, including any
commission, fee, gain or reward, whether the remuneration is received, or is to be received, directly or
indirectly”.
Other mechanisms for discipline under RESA: the Real Estate Council
Section 73 of RESA creates the Real Estate Council of BC, whose function is to: (a) administer the Act and
its regulations, rules and bylaws; (b) maintain and advance the knowledge, skill and competency of
licensees under the Act; and, (c) uphold and protect the public interest in relation to the conduct and
integrity of licensees.
Under s. 35(1) of RESA, a licensee can commit professional misconduct by contravening the Act,
breaching a restriction or condition of their licence, doing “anything that constitutes wrongful taking or
deceptive dealing”, or “demonstrates incompetence in performing any activity for which a licence is
required”. Further, s. 35(2) provides that a licensee commits “conduct unbecoming of a licensee” if
they engage in conduct that is: (a) contrary to the best interests of the public, (b) undermines public
confidence in the real estate industry, or (c) brings the real estate industry into disrepute.
Under s. 36 of RESA, a person can file a written complaint to the Real Estate Council if they believe that a
licensee may have committed professional misconduct or conduct unbecoming of a licensee.
Under s. 37 of RESA, the Real Estate Council can conduct investigations and hearings (either on its own
initiative or in response to a complaint) to determine whether a licensee has committed professional
misconduct or conduct unbecoming of a licensee. Real Estate Council hearings are subject to the
principles of fairness. The outcome of a Council investigation or hearing can be a reprimand, a fine, a
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requirement for further education, a suspension of a licence, or the termination of a licence (all the
orders that the Council’s discipline committee can make are set out in s. 43 of RESA).
Section 112 of RESA sets up a special compensation fund for the purpose of providing reimbursements
under Part 5 of RESA for people defrauded by agents (e.g. where money held in trust has gone missing).
Levels of licenses
Section 5 of RESA sets out the various levels of licenses for agents, and ss. 6 and 7 deal with provisions
specific to managing brokers and the relationship between brokerages and other licensees:
a. Brokerage licence: typically held by the agency company, which has a number of representatives;
the licensee on whose behalf other licensees provide real estate services.
b. Managing broker: the highest level of broker/agent; able to do anything in relation to real estate
services under RESA. Under s. 6(1) of RESA, every brokerage must have a managing broker. Under
s. 6(2) of RESA, the managing broker is responsible for the performance of duties imposed on the
brokerage, the control and conduct of the brokerage’s real estate business, including supervision
of the licensed associate brokers and representatives, and the exercise of the rights conferred on
the brokerage by its licence. Under s. 7(1) of RESA, every managing broker can only be licensed to
a single brokerage where they are engaged, subject to the exception in s. 7(2) that a managing
broker can be licensed in relation to more than one brokerage if those brokerages are “affiliated”.
Under s. 7(3), a managing broker must not provide real estate services or accept remuneration for
real estate services other than on behalf of/from the brokerage under which they are licensed.
c. Associate broker: a licensee who has the educational and experience requirement to qualify as a
managing broker, but who provides real estate services under the managing broker’s supervision.
Under s. 7(1) of RESA, every associate broker can only be licensed to a single brokerage where
they are engaged, and under s. 7(3) must not provide real estate services or accept remuneration
for real estate services other than on behalf of/from the brokerage under which they are licensed.
d. Representative: a licensee who provides real estate services under the supervision of the
managing broker. Under s. 7(1) of RESA, every representative can only be licensed to a single
brokerage where they are engaged, and under s. 7(3) must not provide real estate services or
accept remuneration for real estate services other than on behalf of/from the brokerage under
which they are licensed.
Deposit Money & Agent Remuneration
Purpose of deposits
Deposits serve three principal functions:
1. Partial payment of the purchase price.
2. Proof of the purchaser’s sincerity (real and serious) and guarantee of performance by purchaser.
3. A sum of money to which the parties have immediate access for damages. Also the first chunk of
money that an agent can get a hold of in order to pay their commission.
A deposit will commonly be paid by the purchaser to the vendor’s agent. The vendor’s agent will hold the
money in trust for the vendor until the transaction completes.
An agent has a statutory duty to hold deposit money in trust
Section 28(2) places a statutory duty on agents to hold deposit money in trust until either: (a) the parties
agree in writing to release it, or (b) circumstances established by the regulations apply.
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Three circumstances when an agent can touch deposit money
1. If the transaction completes, the agent is entitled to their commission. Section 31(1) of RESA
permits the agent to deduct their commission from the deposit money held in trust. Further, Rule
5-15 of the Real Estate Council Rules provides that a licensee’s remuneration can be paid out of a
trust account on the date when the documents effecting transfer are submitted to the Land Title
Office for registration.
2. If the transaction falls apart and the parties consent to return the deposit to the purchaser or
forfeit the deposit to the vendor.
3. If there are adverse claimants to the deposit money, s. 33 of RESA provides that an agent can pay
the deposit money into the BC Supreme Court (to let the court eventually decide).
Triggers for remuneration
In addition to closing/completion of the transaction (the most common and safe trigger), there can be
other triggers for the payment of remuneration to an agent, including: when the contract for purchase
and sale is entered into, or when the agent is the “effective cause” of the sale (sometimes used as a trigger
in MLS agreements, but very ambiguous!). Ideally, the Listing Agreement will set out in clear, not-tobroad terms what the trigger events are.
Banfield v Hoffer (1977) – MBCA
Vendor was not represented by a listing agent. Banfield, a licensed agent, approached the vendor
with an interested party. The vendor and Banfield agreed to reasonable compensation (but no
Listing Agreement). The vendor then completed the deal with the interested party. Banfield sued
the vendor for reasonable compensation. The Court found that remuneration was triggered
because there was a valid agreement by the vendor to pay the agent a reasonable amount if the
sale occurred; the dissent argued that there was no Listing Agreement/no contract, so the vendor
had no obligation to pay Banfield. If an unrepresented vendor agrees to pay an agent
reasonable compensation, remuneration may be triggered upon sale of the vendor’s
property even in the absence of a formal Listing Agreement/no privity of contract.
Block Bros v Viktora (1974) – BCCA
Parties entered into MLS agreement for purchase and sale of house. The MLS agreement contained
very broad remuneration terms: commission to be paid if the agent introduced someone who was
“willing and able” to purchase (no contract for purchase and sale, or closing required). The Court
found that remuneration was triggered because the agent had introduced the buyer to the vendor
when the MLS agreement was still in place. Even if a Listing Agreement contains broad,
unclear remuneration terms (remuneration when agent introduces a party who is “willing
and able” to purchase), remuneration may be triggered if a court finds that the
remuneration requirements have been met.
No right to remuneration
An agent will have no right to remuneration where:
1. Where the agent is unlicensed, in contravention of s. 3(1) of RESA (as per s. 4(1) of RESA);
2. When the trigger events set out in a Listing Agreement are not met;
3. Where there is no privity of contract between the vendor and the agent (though courts may
be willing to order that reasonable compensation be paid to an agent where vendor has made
representations to that effect, as per Banfield v Hoffer); or,
4. When the agent is negligent, as per Academy Aluminium Products.
An unlicensed person cannot recover remuneration
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Section 4(1) of RESA provides that an unlicensed person cannot bring a claim for remuneration in
relation to real estate services, subject to the exception in s. 4(2) for a person who is licensed or
otherwise authorized to provide real estate services and “act in a capacity equivalent to that of a
brokerage under this Act” in another jurisdiction. Section 1 of RESA defines “remuneration” very
broadly as: “any form of remuneration, including any commission, fee, gain or reward, whether the
remuneration is received, or is to be received, directly or indirectly”.
Academy Aluminium Products v McInerny Realty (1980) – ABCA
Vendor and agent entered into Listing Agreement whereby the listing agent was to receive a flat
commission. Vendor’s listing agent negligently wrote down a lower than actual monthly payment
mortgage payment (this mortgage turned out to be a debenture, due to an innocent
misrepresentation by the vendor). The Court found that the listing agent liable for negligent
misrepresentation, and denied the agent payment of her commission: “The agent did not perform
her duty with the degree of skill, care and diligent required by the agreement, and so is not
entitled to claim the payment provided by it.” The CA overturned the trial court order that the
agent be paid 50% of her commission. When an agent is negligent, courts may deny all
remuneration.
An agent must not accept/agree to remuneration based on difference b/w listing price and actual price
Rule 5-14 of the Real Estate Council Rules provides that an agent must not enter into an agreement for
payment of remuneration based on the difference between the listing price and the actual price. In other
words, you cannot enter into an agreement where you get paid extra for securing more money.
Summary of an Agent’s Duties
Listing Agent
(vendor’s agent)
Duties owed to vendor
 Owes the vendor express contractual duties
provided for in the Listing Agreement.
 Owes the vendor implied contractual duties of skill
and diligence.
 Owes a duty of care to the vendor (where the
standard of care is that of a reasonable and prudent
agent); Price v Malais.
 Owes statutory duties to the vendor; RESA and Real
Estate Council Rules.
o Rule 5-3: agent cannot sign K on behalf of
vendor w/o written authorization.
o Rule 5-3.1: if there is an offer from a prospective
purchaser, the agent must promptly
communicate this offer to the vendor.
purchaser.
o Rule 5-4: agent must also promptly
communicate signed acceptance of an offer.
o Rule 5-5: agent must not induce any party in a
transaction to break an agreement for purpose
of entering into agreement w/ another party.
o Rule 5-9: agent must disclose promptly any
direct or indirect interest they have in a real
estate transaction; Manning Family Trust.
o Rule 5-10: agent must disclose promptly
whether they or a related licensee expects to
provide services to any other party in relation
to same transaction.
o Rule 5-13: if the vendor urges the agent to hide
a material latent defect, the agent has a
statutory duty to withdraw themselves as the
vendor’s agent.
Duties owed to purchaser
 Owes the purchaser (and all other prospective
purchasers) the statutory duty to disclose all
material latent defects; Rule 5-13.
 Owes the purchaser the statutory duty to
promptly deliver signed acceptance of an offer
from the vendor to the purchaser; Rule 5-4.
 Owes the purchaser the statutory duty not to
make a inducement representation unless it is in
writing; Rule 5-6.
 Owes the purchaser the statutory duty to
disclose promptly any direct or indirect interest
they have in a real estate transaction; Rule 5-9
and Manning Family Trust.
 Owes the purchaser the statutory duty to
disclose promptly whether they or a related
licensee expects to provide services to any other
party in relation to same transaction; Rule 5-10.
 Owes the purchaser the duty of care not to
negligently misrepresent information; Bango v
Holt. Where an agent is found to have negligently
or fraudulently misrepresented information,
their principal/the vendor will also be liable for
this dishonesty b/c of agent-principal
relationship; Smith v Yeasting.
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 Owes a fiduciary duty to the vendor, to act in the
vendor’s best interests at all times and not let any
actual conflicts of interest arise; International Corona.
Selling Agent
(purchaser’s
agent)
*The sub-agent in
an MLS agreement
 May owe the vendor a fiduciary duty; Knoch Estate
and Winners v Goddard Smith.
 No privity of contract between a sub-agent and the
vendor as a result of MLS agreement; Winners v
Goddard Smith.
 Owes the purchaser an express contractual duty if
there is a Purchaser’s Agreement.
Principal-Agent Relationship
Definition of an agent
An agent is someone authorized by a principal to act on the principal’s behalf. The legal consequence
of this agency relationship is that the actions of the agent are legally binding on the principal. E.g. if A
authorizes X to be their agent and X goes out and sells A’s house, A is bound by the sale.
An agent has two types of authority:
1. Express authority: authority that is expressly given by the principal to the agent in a contract, e.g.
a Listing Agreement.
2. Implied authority: authority that is implicitly given by the principal to the agent, through words
or conduct (“the reasonable person lens”), e.g. the Court in Carmichael found that the vendor’s
argent had the implied authority to delegate his obligations to a sub-agent.
Agent’s duties to their principal
In real estate transactions, agents have four types of duties:
1. Statutory duties: found in RESA and the Real Estate Council Rules, e.g. Rule 5-3.1, 5-4, 5-4, 5-6.
2. Contractual duties: can be express or implied; only owed by the agent to the agent’s direct
principal (privity of K); standard implied contractual duties include duties of skill and diligence.
3. Tort duties: duty of care to principal; standard of care is that of a reasonable and prudent agent.
4. Fiduciary duties: see Frame v Smith and Corona.
An agent has a STATUTORY duty not to sign a K on behalf of their client w/o written authorization
Rule 5-3 of the Real Estate Council Rules provides that an agent can only sign a contract on behalf of their
client after obtaining written authorization from either the client or an authorized agent of the client.
An agent has a STATUTORY duty to promptly communicate offers to relevant parties
Rule 5-3.1 of the Real Estate Council Rules provides that an agent must, upon receipt of a signed offer from
another party, promptly communicate the signed offer to the relevant party.
An agent has a STATUTORY duty to promptly deliver signed acceptance of offers
Rule 5-4 of the Real Estate Council Rules provides that an agent must, upon obtaining signed acceptance of
an offer to sell or purchase property, promptly deliver a copy of the signed acceptance to each of the
parties to the trade as well as to the agent’s own brokerage. However, as per Carmichael, late
communication of an offer may be acceptable where the offeror has made it impossible to accept an offer
in time.
An agent has a STATUTORY duty to not induce breach of the agreement
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Rule 5-5 of the Real Estate Council Rules provides that an agent must not induce any party in a real
estate transaction to break an agreement they have entered into for the purpose of entering into an
agreement with another party.
An agent has a STATUTORY duty not to make an inducement representation unless it is in writing
Rule 5-6 of the Real Estate Council Rules provides that an agent must not make an inducement
representation (a promise or representation intended to induce another party to buy or sell real estate)
unless it is in writing and clearly sets out all the details of the inducement representation.
An agent has a STATUTORY duty to disclose any direct or indirect interest they have in a transaction
Rule 5-9 of the Real Estate Council Rules provides that an agent must disclose “promptly” any direct or
indirect interest that they have in a real estate transaction (before any agreement for purchase and sale
is entered into). See Manning Family Trust case if the agent is the purchaser.
An agent has a STATUTORY duty to disclose whether they (or a related licensee) expects to provide
real estate services to any other party in relation to the same transaction
Rule 5-10 of the Real Estate Council Rules provides that an agent must disclose whether they (or a related
licensee) expect to provide real estate services to any other party in relation to the same transaction, or
whether they have a relationship to any of the parties (e.g. family, business). Possible conflict of interest!
An agent has an implied CONTRACTUAL duty of requisite skill towards their principal
An agent has an implied contractual duty to exercise their duties with reasonable skill and care (to the
standard of the average agent). Implication: an agent will have the requisite skill to discharge their duties.
An agent has an implied CONTRACTUAL duty of diligence towards their principal
An agent has an implied contractual duty to discharge their duties owed to their principal diligently.
An agent owes a DUTY OF CARE (TORT) to their principal to act as a reasonable and prudent agent
An agent has the duty of care to their principal to act as a reasonable and prudent agent because it
reasonably foreseeable that if the agent acts negligently, the principal will suffer. If an agent’s conduct
falls below the conduct of a reasonable and prudent agent, the agent will be liable under negligence law.
Price v Malais (1982) – BCSC
Contract for purchase and sale of a property that was encumbered by two easements. Agent knew
about at least one of the two easements but did not search title, failed to mention the easement,
and wrote into the contract a conveyance of clear title. The Court held that an agent owes a duty
to their client to exercise reasonable care and skill in keeping with the standards of the
profession. In this case, the agent’s failure to investigate title before making a claim that
title would be clear constituted a breach of the duty of care owed by the agent to the vendor.
An agent owes a FIDUCIARY duty to their principal to represent their best interests, not breach trust
An agent’s fiduciary duty to their principal requires that they be upfront, represent the principal’s best
interests in all circumstances, and not let any actual conflicts of interest arise. The three factors that give
rise to an agent’s fiduciary duty to their principal were set out by the SCC in Frame v Smith, and echoed
again in International Corona: (1) the fiduciary has scope for the exercise of some discretion or power,
or there is a repose of trust or confidence; (2) the fiduciary can unilaterally exercise the power or
discretion so as to affect the beneficiary’s legal or practice interests; and (3) the beneficiary is peculiarly
vulnerable to or at the mercy of the fiduciary holding the discretion of power.
International Corona v LAC Minerals (1989) – SCC
Three factors that give rise to a fiduciary duty owed by the agent to the principal (vendor).
The SCC in International Corona held that a fiduciary duty existed between LAC, a sophisticated
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mining company, and Corona, a junior mining company. LAC and Corona had been working
towards a joint venture to buy a piece of property, and Corona had shared valuable information
with LAC in confidence. The SCC found that LAC acquiring the piece of property on its own
constituted a breach of fiduciary duty.
Knoch Estate v Jon Picken Ltd (1991) – ONCA
In very narrow circumstances, a selling agent can owe a fiduciary duty to the vendor, even
without privity of contract. The vendor’s listing agent was Royal Trust. The purchaser’s selling
agent was Jenkins. Immediately after purchasing the property from the vendor for $2.102 million,
the purchaser resold the property through Jenkins to a third party for $2.75 million. The vendor
sued Jenkins for breach of fiduciary duty for failing to disclose that the third party was interested
in buying the property for more than the initial transaction price. Griffiths JA found that a fiduciary
did not exist between the vendor and the selling agent because the third party had not expressed
an interest in the property until after the first offer accepted. However, Griffiths JA said, in rare
cases, a selling agent can owe a vendor a fiduciary duty. Another judge said: no privity of contract,
so no fiduciary duty.
Agent’s authority to delegate obligations to a sub-agent (MLS agreements)
Carmichael v Bank of Montreal (1972) – MBQB
Cuthbert was vendor BMO’s agent. MLS Agreement permitted the main listing agent to use other
sub-agents. Tilly was potential purchaser Carmichael’s agent, and Cuthbert’s sub-agent thanks to
MLS Agreement. Tilly communicated an offer to purchase the property from his client Carmichael
to BMO. BMO returned a counteroffer, saying that it would remain open until 6 pm Friday.
Carmichael decided to accept BMO’s counteroffer late Friday, and communicated this decision to
Tilly before 6 pm. Tilly was unable to communicate acceptance of the counteroffer to bank
manager until after 6 pm. In the meantime, BMO accepted an offer from a third party. Carmichael
sought specific performance. Issue: was Tilly, as a sub-agent to Cuthbert by virtue of the MLS
Agreement, authorized to accept the offer? The Court held that Tilly was authorized to accept his
client Carmichael’s offer on behalf of the bank manager/BMO. Communication of acceptance by
the purchaser to a sub-agent (Tilly) in the MLS system was sufficient to constitute
communication to the Principal. An agent must have either express or implied authority
from his/her principal to delegate his/her obligations in an agency relationship to a subagent. Authority to delegate will be implied: (1) within the practice of the business; (2)
where the principal knows from that outset of the relationship that the agent they have
hired may delegate authority to a sub-agent; (3) by the actual conduct of the parties; (4)
where the nature of the authority given to the agent required delegation; (5) in the case of
an emergency; (6) where the action that the sub-agent took was administrative in nature
only. The Court held that BMO/the bank manager knew from the outset that Cuthbert might
delegate authority a sub-agent (the bank manager had experience with the MLS system and knew
that the MLS Agreement authorized delegation of authority).
Winners v Goddard Smith (1991) – BCSC
Delegation from an agent to a sub-agent via an MLS agreement does not create privity of
contract between the principal (vendor) and the sub-agent (the selling agent), but a
fiduciary duty can exist between the selling agent and the vendor without privity of
contract (echoing the ratio in Knoch Estate). An MLS-system contract for purchase and sale was
entered into, and the purchaser’s selling agent (a sub-agent to the principal) held the deposit of
$50,000 in trust. The conditions to pay the commission had been met, but the deal collapsed when
the purchaser failed to complete. The vendor and purchaser agreed on a settlement: vendor would
receive $45,000, purchaser would get $5000 back. The vendor’s listing agent agreed to waive its
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commission. But before returning deposit funds, the selling agent took out his commission. The
Court held that the selling agent was not allowed to keep his commission, because the Listing
Agreement imposed no contractual obligation on the vendor to pay a commission to the selling
agent (no privity of contract between a principal and a sub-agent; the vendor’s obligation in the
Listing Agreement was to pay the a commission to its listing agent only). The sub-agent must
look to the listing agent, not the vendor/principal, for its commission.
Dual Agency
Remember that Rule 5-10 of the Real Estate Council Rules provides that an agent must disclose whether
they (or a related licensee) expect to provide real estate services to any other party in relation to the
same transaction (possible conflict of interest!). But if both parties agree in writing, the same agent can
act for both parties. The dual agent is supposed to be impartial to both the vendor and the purchaser, and
must fully disclose all information related to the transaction.
Agent’s Duties to Third Parties
In addition to owing duties to their principal, an agent may also owe duties to third parties.
An agent owes a STATUTORY duty to a third party to disclose material latent defects
Rule 5-13 of the Real Estate Council Rules provides that an agent “must disclose to all other parties to the
trade, promptly but in any case before any agreement for the acquisition or disposition of the real
property is entered into, and material latent defect in the real estate” that is known to the agent. The
Rule defines “material latent defect” as a material defect “that cannot be discerned through a reasonable
inspection of the property”. Further, Rule 5-13(3) provides that if a client/vendor instructs their agent to
withhold disclosure/keep a material latent defect hidden, the agent must refuse to provide any further
services to the client.
An agent owes a STATUTORY duty not to pay remuneration to an unlicensed person
Rule 6-1 of the Real Estate Council Rules provides that an agent “must not pay, offer to pay or agree to
allow to be paid, remuneration to a person in relation to real estate services if the person is required to
be licensed in relation to those services but is not licensed”.
An agent owes a TORT duty to a third party not to represent untrue, inaccurate, misleading info
The tort of negligent misrepresentation was first articulated by the SCC in Hedley v Byrne. The current
leading authority on negligent misrepresentation is the SCC decision in Queen v Cognos. The elements of
the tort of negligent misrepresentation are:
1.
2.
3.
4.
5.
There is a special relationship between the representor and the representee;
The representation in question is untrue, inaccurate, or misleading;
The representor acted negligently in providing the said negligent representation;
The representee relied in a reasonable manner on the negligent representation;
The reliance must have been detrimental to the representee such that damages resulted.
The cases that illustrate the tort of negligent and fraudulent misrepresentation in a residential real
estate context are Bango v Holt and Smith v Yeasting.
Bango v Holt (1971) – BC
Contract for purchase and sale entered into between vendor and purchaser. The vendor’s listing
agent had listed the property as a possible duplex. However, the vendor has already signed a
declaration to the City that the property would only be used as a single-family dwelling. In
negotiations, the purchaser had suggested to the listing agent that his specific goal was to develop
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a duplex, and the listing agent had confirmed this possibility. The vendor did nothing to dispel this
misunderstanding. The Court found the vendor liable for fraudulent misrepresentation, and the
listing agent liable for negligent misrepresentation (despite the fact that the listing agent had no
privity of contract with the purchaser). Agents can be liable to third parties for negligent
misrepresentation, even in the absence of privity of contract.
Smith v Yeasting (1955) – BCSC
Contract for purchase and sale entered into between vendor and purchaser for house with a
second bathroom (that was illegal). The vendor received a notice from the City of Vancouver,
requiring the removal of this second bathroom within 30 days. The vendor informed the listing
agent. The listing agent knowingly misrepresented the state of affairs to the purchaser. The Court
found that the listing agent and vendor were both liable for fraudulent misrepresentation. Even
though the vendor had not authorized the listing agent’s this fraudulent misrepresentation,
the agent-principal relationship is such that the vendor (the principal) was liable for the
listing agent’s dishonesty. Note: vendor then had a potential action against its own listing agent
for fraud and deceit.
An agent has a STATUTORY duty to disclose any direct or indirect interest they have in a transaction
Rule 5-9 of the Real Estate Council Rules provides that an agent must disclose “promptly” any direct or
indirect interest that they have in a real estate transaction (before any agreement for purchase and sale
is entered into). See Manning Family Trust case if the agent is the purchaser.
Manning Family Trust v Country Brook Estates Ltd (1996) – BCSC
Manning Trust (sophisticated and knowledgeable in real estate transactions) entered into
agreement to sell property to a company that was run by a realtor. This realtor was not acting as a
listing or selling agent, but failed to disclose his interest in the company. The Court held that,
though the realtor had failed to disclose his interest, this failure did not render the agreement void
or voidable because Manning Trust was a sophisticated party, and the realtor was not liable for
fraudulent misrepresentation. Where the purchaser is also a licensee/agent, they have a
statutory duty under Rule 5-9 to promptly disclose their interest; however, a failure to
disclose will not necessarily render a contract for purchase and sale void or voidable,
especially where the vendor is a sophisticated party.
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THE CONTRACT OF PURCHASE AND SALE
The Contract
Standard Form
A standard form Contract of Purchase and Sale is used most residential transactions. What is the problem
with standard form contracts? One size does not fit all, and people often fail to read them.
Standard Form K of Purchase and Sale dissected
Parties: Seller & Buyer
Parties must be described in sufficient detail to identity them.
Seller/vendor:
 Can be anyone with an interest in the land.
 If multiple parties, all must be included.
 If owned by two people and only one is named in the K, that one person is selling their interest (e.g. 50%
as tenants in common).
 If owner of property is a company, the exact company name listed on title must be named as the seller.
Buyer/purchaser:
 Using “name and/or nominee” (nominee = someone to be named later) may not be certain enough if
there are problems later on. See “parties” section, by 3Ps.
Property: Legal
Description, Civic Add.
Legal description is the most certain way to describe a property. The next best way is with a civic address, but
this can be less accurate. Riskiest/most uncertain: a descriptive address (e.g. third house from the corner).
1. Purchase price
Certainty of price is required.
In commercial transactions, purchase price often adjusted to account for variety of factors (e.g. rents from a
mall complex). In residential context, rely on customary adjustments.
2. Deposit
Paid as partial payment of purchase price, as a guarantee of performance, and as a means to access remedies.
A deposit is to be paid on the terms set out in the contract. Standard form contract does not set out what
happens to deposit if something goes wrong (so agent may end up paying into court, under s. 33 RESA).
3. Terms & Conditions
List the conditions that will hold the contract in suspension until they are fulfilled. “Each condition, if so
indicated, is for the sole benefit of the party indicated…” > this assigns the right of who can waive the
effectiveness of a condition.
4. Completion
5. Possession
These dates may be different.
Keep in mind who bears the risk of things happening to the property between the dates.
6. Adjustments
Adjustments to the purchase price, to factor in things like property taxes, rent, etc.
7. Included Items
The only things that go with the land are fixtures (test: a fixture is “attached” to the property; something is a
chattel if it is not attached/can be removed w/ minimal damage to the property). If you are unsure whether
something is a fixture or not, write it in to ensure that the thing will pass with the property.
8. Viewed
Property will be in the same condition on the Possession Date as on the date it was viewed.
*This is a covenant and representation. If this is struck out and replaced with “as is”, no representation is
made about the condition of the property.
9. Title
The state of the title being purchased. Should be broad enough to include things that are registered on title
and things that are unregistered but may affect title (e.g. less than 3 year + occupancy lease exception to
indefeasible title set out in s. 24 of the Land Title Act). In a commercial context, lawyers will search to
determine if there are statutory liens on title.
If there is a discrepancy b/w title agreed to and actual title, the purchaser has remedies:
1. Purchaser can walk away from the deal [not what they contracted for];
2. Purchaser can close and sue the vendor for the remaining encumbrance; or,
3. Purchaser can demand specific performance [refusing to close until encumbrance is dealt w/ by vendor].
Standard form: “Free and clear of all encumbrances except subsisting conditions, provisos, restrictions,
exceptions and reservations, including royalties, contained in the original grant or contained in any other grant
or disposition from the Crown, registered or pending restrictive covenants and rights-of-way in favour of utilities
and public authorities, existing tenancies set out in Clause 5, if any, and except as otherwise set out herein.”
10. Tender
Standard form: “Tender or payment of monies by the Buyer to the Seller will be by certified cheque, bank draft,
cash or Lawyer’s/Notary’s trust cheque.”
11. Documents
Standard form: “All documents required to give effect to this Contract will be delivered in registrable form where
necessary and will be lodged for registration in the appropriate Land Title Office by 4:00 pm on the Completion
Date.”
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12. Time
“Time is of the essence” specifies that the contract must be met perfectly in terms of deadlines. If both sides
miss a time, the contract/obligations continue and one party has to “reset” the time. If the buyer misses a
deadline, the seller has the option to terminate the contract and the amount paid by the buyer will be
“absolutely forfeited to the Seller”.
Standard form: “Time will be of the essence hereof, and unless the balance of the cash payment is paid and
such formal agreement to pay the balance as may be necessary is entered into on or before the Completion Date,
the Seller may, at the Seller’s option, terminate this Contract, and, in such event, the amount paid by the Buyer
will be absolutely forfeited to the Seller in accordance with the Real Estate Act, on account of damages, without
prejudice to the Seller’s other remedies.”
13. Buyer Financing
Allows for the use of undertakings to close the deal where the buyer is relying on financing. If a contract
does not authorize the use of undertakings to close, lawyers are not authorized to give undertakings, as per
Norfolk v Aikens.
14. Clearing Title
15. Costs
The buyer bears the cost of conveyance. Courts interpret this to mean that the buyer is responsible for
preparing the conveyancing documents (Shaw v Greenland).
Standard form: “The Buyer will bear all costs of the conveyance and, if applicable, any costs related to arranging
a mortgage and the Seller will bear all costs of clearing title.”
16. Risk
The buyer is the beneficial owner and the seller is deemed a trustee with a positive duty to maintain the
property. If something happens to the property before closing, the seller is responsible for repair, etc.
17. Plural
Standard form: “In this Contract, any reference to a party includes that party’s heirs, executors, administrators,
successors and assigns; singular includes plural and masculine includes feminine.”
18. Representations &
Warranties
Limits representations and warranties about the property only to those that are written. Creates the survival
of these representations and warranties after purchase.
Standard form: “There are no representations, warranties, guarantees, promises or agreements other than those
set out in this Contract and the representations contained in the Property Disclosure Statement if incorporated
into and forming part of this Contract, all of which will survive the completion of the sale.”
19. Agency Disclosure
If an agent has a relationship to either the buyer or the seller, must be set out here. If the buyer and seller
agree to dual agency, they must indicate this here and must also sign a Limited Dual Agency Agreement.
21. Acceptance
Irrevocable (Buyer &
Seller)
Standard form: “The Seller and the Buyer specifically confirm that this Contract of Purchase and Sale is
executed under seal. It is agreed and understood, that the Seller’s acceptance is irrevocable until after the
date specified for the Buyer to either:
A.
fulfill or waive the terms and conditions herein contained; and/or
B.
exercise any option(s) herein contained.”
Standard form: “THIS IS A LEGAL DOCUMENT. READ THIS ENTIRE DOCUMENT AND INFORMATION PAGE
BEFORE YOU SIGN.”
22. This is a legal
document
23. Offer
Standard form: “This offer, or counter-offer, will be open for acceptance until
o’clock ____ m.
on
, yr.
and upon acceptance of the offer, or counter-offer, by accepting in
writing and notifying the other party of such acceptance, there will be a binding Contract of Purchase and Sale
on the terms and conditions set forth.”
24. Acceptance
Standard form: “The Seller (a) hereby accepts the above offer and agrees to complete the sale upon the terms
and conditions set out above, (b) agrees to pay a commission as per the Listing Contract, and (c) authorizes and
instructs the Buyer and anyone acting on behalf of the Buyer or Seller to pay the commission out of the cash
proceeds of sale and forward copies of the Seller’s Statement of Adjustments to the Cooperating/Listing Agent, as
requested, forthwith after completion.”
Addendum
Letters of Intent & Enforceability
A letter of intent is an agreement between parties that summarizes their business intentions and is
typically expressly states that it is not a binding agreement (either in whole or in part). But parties can
always try to argue that a letter of intent is, in fact, a binding agreement. The minimum requirements for
a letter of intent to be legally enforceable are the three Ps: price, parties, and property. If one or more of
the three Ps are missing, a court will be unable to determine the scope/nature of the agreement between
the parties, as per Arnold Nemetz Engineering.
387903 BC Ltd v Canada Post (1995) – BCSC
Letter of intent drafted and executed between Canada Post and the purchaser. The binding
agreement was drafted but never signed, so the deal did not go through. The purchaser brought a
16
claim for specific performance against Canada Post, claiming that Canada Post’s actions following
the execution of the letter of intent suggested that Canada Post agreed to be legally bound by the
letter of intent. The Court held that the test for enforceability of a Letter of Intent should not
be an inquiry into the actual state of mind of the parties, but rather an objective test that
looks at how the promisor’s conduct would strike a reasonable person in the promisor’s
position. A highly fact-dependent analysis. The Court concluded that, from the point of view of
a reasonable person, Canada Post did not agree to be legally bound by the terms of the letter of
intent. Factors the Court considered: the purchaser continued to call the documents that followed
the executed letter of intent “offers”; the letter of intent stated that it was not legally binding; and,
all documents stated that the agreement was subject to final approval by Canada Post’s board of
directors. Further, the Court held that Canada Post owed no duty of good faith in
negotiation/bargaining to the purchaser.
Options/Rights of First Refusal
An option grants a right to do something on the happening of some event (e.g. the passage of time, a
specific event). An option is just another way of saying, “I will buy it, if I feel like it”. An option places no
enforceable obligation on the option-holder to purchase a property, but binds the vendor not to sell the
property to another party without first giving the option-holder the opportunity to say “yes” or “no”. For
an option to be complete and enforceable, it must have all the elements of a contract – above all else,
consideration. The option-holder/purchaser must provide some valuable consideration to the vendor.
Problems with Real Estate Contracts
Evidentiary Problems: Statute of Frauds and s. 59 of the Law and Equity Act
Section 59(3) of the Law and Equity Act provides that a contract respecting land/the disposition of land
“is not enforceable” unless:
(a) The contract is in writing, s. 59(3)(a): there is an agreement in writing signed by the party to be
charged (the party against whom you are bringing the claim); same thing as the Statute of Frauds.
(b) The doctrine of part performance, s. 59(3)(b): where the party to be charged has done an act
or acquiesced to an act that indicates that there is a contract, and is not inconsistent with there
being a contract. Section 59(4) clarifies that, for the purpose of s. 59(3)(b), an act by the party to
be charged includes the payment or acceptance of a deposit or part payment of the purchase price.
 E.g. in the absence of a written contract, the purchaser says it will pay $1,000,000 and
then gives the vendor $500,000; if the purchaser then refuses to go ahead with the
transaction, the vendor can rely on s. 59(3)(b) of the Law and Equity Act to bring a claim
against the purchaser on the basis of part performance.
 In Nicol v Wengel, the BCCA applied s. 59(3)(b) of the Law and Equity Act and the doctrine
of part performance, and found that the purchaser’s payment of a deposit and the
vendor’s agent’s acceptance of this deposit was sufficient evidence of an act or
acquiescence on the part of the vendor to indicate that there was an enforceable contract.
(c) The doctrine of reliance, s. 59(3)(c): where the party alleging the contract has, in reasonable
reliance on the contract, changed their position such that it would be unfair/inequitable not to
enforce the contract.
 E.g. in the absence of a written contract, the purchaser and the vendor agree to a sale, so
the purchaser signs a big mortgage agreement, pays the fee, and then can’t back out; if the
vendor then refuses to go ahead with the transaction, the purchaser can rely on s. 59(3)(c)
to have the sale enforced.
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NOTE: oral/unwritten agreements tend to arise in amendments to existing agreements! So the
existing agreement may be comprehensive and in writing, but parties in a phone call may agree to
amendments.
The parol evidence rule provides that oral evidence related to a written K is generally inadmissible – in
other words, courts will only look to the “four corners” of the contract/will only look at what is in writing.
But there are some exceptions to the parol evidence rule at common law: (1) if a party can show that the
oral evidence is not inconsistent with the written agreement, that oral evidence may be admissible; or (2)
if the oral evidence supplements the written agreement, that oral evidence may be admissible.
*As we saw in Canada Post, it is not too difficult to convince a court to look at other evidence in order to
decipher the parties’ intentions. Intention of the parties is paramount!
Nicol v Weigel (1991) – BCCA
Original agreement was altered orally by purchaser and vendor. The purchaser paid a deposit,
which was acknowledged by the vendor’s agent. But the vendor ended up selling the property to a
third party. The purchaser sued for specific performance. The vendor claimed the agreement was
unenforceable because it had been altered orally. The Court held that acceptance by the vendor’s
agent of the purchaser’s deposit was sufficient evidence, under s. 59(3)(b) of the Law and Equity
Act, of enforceability > the vendor acquiesced to an act that indicated that there was a contract,
and was not inconsistent with there being a contract. Doctrine of part performance, s. 59(3)(b)
of the Law and Equity Act.
The 3 Ps + Vagueness/Uncertainty
If one of the three Ps is missing or uncertain, it will be very difficult for a court to find that the agreement
is enforceable. Quoting Lord Wright, McFarlane JA of the BCCA suggested that the question of uncertainty
is whether “having regard to any relevant circumstances, the language used is “so obscure and incapable
of any definite or precise meaning that the court is unable to attribute to the parties any particular
contractual intention””.
Property
To meet the requirement for certainty of property, you must identify the property such that another party could identify it.
Best way to do this: PID (9 digits) + legal descriptor.
Okay alternative: civic address. But the problem with civic addresses is that cities always lag behind the Land Title Office. The Land Title
Office may register the division of an existing parcel of land, but these multiple legal parcels may have a single municipal address until
the city catches up.
Worst way: descriptive address, e.g. the fourth house beside the red one. The problem with a descriptive address is that it could work
but will likely cause trouble due to vagueness. [will be on the exam!]
In Zilka, the Contract of Purchase and Sale contained an unclear description of what part of the land would be kept by the vendors and
what part of the land would be sold to the purchaser. The SCC refused to look beyond the four corners of the agreement/refused to look
at extrinsic evidence to determine the intention of the parties, and concluded that the property description was uncertain and therefore
the contract was unenforceable. [similar to First City “four corners” approach, but several decades before Canada Post (1995) and
Dynamic Transport (1998), which looked at extrinsic evidence]
In Dynamic Transport, the Contract of Purchase and Sale said “…4 acres, more or less”. During the interim period, the property
quadrupled in value and the vendor tried to argue that the contract was unenforceable due to lack of certainty of property. The SCC
looked at extrinsic evidence (what the parties said and did during the course of negotiations) to fully identify the property, and
concluded that the property description as it was was sufficiently certain. [similar to the Canada Post analysis, which looked at extrinsic
evidence]
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Parties
To meet the requirement for certainty of parties, every party who has an interest in the property must be named in the contract (legal
interests holders and beneficial interest holders).
Little important details
“NAME or nominee”: Courts have generally accepted this phrase as sufficiently certain (though arguably it is uncertain b/c you are
unable to identify who the purchaser is).
“NAME and nominee”: Courts are less settled about this phrase. Some courts have rejected this phrase as uncertain because you only
know half of who the purchaser is, while others have accepted it as sufficiently certain.
When might this problem arise? You go to buy a house without your spouse, but you want your spouse on title.
How to get around this problem of “and/or nominee”? Assignment. Including an express provision that allows you to assign the contract
to someone else is sufficiently clear/certain. Though the law in BC allows assignment in any real estate K that does not expressly prohibit
it, wise to include an express provision allowing assignment.
Price
To meet the requirement for certainty of price, you must either state a single figure or a method (a formula that is clear and
descriptive). In Arnold v Nemetz, the method for calculating interest (“Balance of $23,500 by A/S at 8½% interest P/I over 10 yrs with a
pay up clause after 5 years.”) was held to be unclear.
Courts will do their best to give effect to the intention of the parties… but courts will not make a K for the parties!
Courts will do their best to try to decipher the intention of the parties.
In Arnold Nemetz, McFarlane JA for the BCCA said: “…every effort should be made by a court to find a meaning, looking at substance and
not mere form, and that difficulties in interpretation do not make a clause bas as being capable of interpretation, so long as definite
meaning can properly be extracted.” But, courts can only go so far. McFarlane JA said that courts should not “make a contract for the
parties, or go outside the words they have used”. COURTS SHOULD DO EVERYTHING THEY CAN TO GIVE EFFECT TO THE WRITTEN
WORDS OF THE PARTIES, BUT CANNOT LOOK ELSEWHERE.
In First City Investments, Kinkson JA for the BCCA suggested that courts could apply terms into an agreement: “It is only the lack of a
term that is so essential to the contract that without it the court cannot collect the real intentions of the parties from the language within
the four corners of the instrument and so cannot give effect to such intentions by supplying anything necessarily to be inferred that will
render the contract unenforceable.” TO GIVE EFFECT TO THE PARTIES’ INTENTIONS, COURTS CAN IMPLY TERMS INTO A K BY
LOOKING “WITHIN THE FOUR CORNERS OF THE AGREEMENT”.
In Canada Post, the BCSC went a step further than the BCCA in First City Investments, finding that, not only can courts imply terms into a
contract by looking within its four corners, courts can also imply terms/determine the enforceability of a contract by looking at the
actions of the parties and other outside documents (doing away with the strict Parol Evidence rule). The Court in Canada Post held that
the test for enforceability of a Letter of Intent should be an objective test that looks at how the promisor’s conduct would strike a
reasonable person in the promisor’s position. TO GIVE EFFECT TO THE PARTIES’ INTENTIONS, COURTS CAN LOOK BEYOND THE FOUR
CORNERS OF THE AGREEMENT TO THE PARTIES’ CONDUCT, OTHER DOCUMENTS, ETC.
Dynamic Transport is another example of courts looking beyond the 4 corners of an agreement.
Arnold Nemetz Engineering v Tobien (1971) – BCCA
The vendor used cryptic language in describing what the interest consisted of: “Balance of $23,500
by A/S at 8½% interest P/I over 10 yrs with a pay up clause after 5 years.” It was clear what A/S and
P/I stood for (“agreement of sale”, and “principal and interest”), but it was not clear whether the
interest was to be calculated at a rate over ten years, per annum, or per some other interval.
MacFarlane JA concluded: “the contract is so vague and uncertain as to essential matters that it must
be held unenforceable”. Courts will do their best to decipher the intentions of the parties, but courts
cannot go as far as making a contract for the parties. Contract found to be unenforceable for
uncertainty due to ambiguous formula for calculating interest added on to price.
First City Investments v Fraser Arms Hotel (1979) – BCCA
Commitment letter for financing signed between Fraser Arms Hotel and a lender. The commitment
letter contained a clause that allowed a lender to back out of the financing agreement for a variety of
reasons, including due diligence. Due diligent revealed that part of the hotel kitchen was on BC
Transit right of way. The lender backed out but sought their commitment fee (as agreed to in the
commitment letter). The issue was whether the commitment letter contained clear settlement of the
fundamental terms (the three Ps) such that the letter was legally enforceable. Fraser Arms tried to
argue that the agreement was ambiguous so unenforceable. But the Court held that the fundamental
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terms (price, parties, property) could be implied from “within the four corners of the agreement”.
The Court said: “It is only the lack of a term that is so essential to the contract that without it the
court cannot collect the real intentions of the parties from the language within the four corners of the
instrument and so cannot give effect to such intentions by supplying anything necessarily to be
inferred that will render the contract unenforceable.” Contract found to be enforceable because,
though the terms on their face may have been unclear, “within the four corners of the
agreement… the parties clearly expressed their intention as to how the loan was to be repaid”
– the court was able to apply the fundamental terms (three Ps) from within the four corners of
the agreement to correct any express uncertainty.
Deposit
Purpose & Legal Significance
Deposits serve three principal functions:
1. Partial payment of the purchase price (Lozcal Holdings).
2. Proof of the purchaser’s sincerity (real and serious) and “a guarantee that the purchaser means
business” (Lozcal Holdings, quoting Soper v Arnold).
3. A sum of money to which the parties have immediate access for damages (a genuine pre-estimate
of damages).
McGillivray CJA in Lozcal Holdings said: “The deposit… is a guarantee that the contract shall be performed.
If the sale goes on… it goes in part payment of the purchase-money for which it was deposited; but if on
the default of the purchaser the contract goes off, that is to say, if he repudiates the contract, then,… he
can have no right to recover the deposit.”
The term “deposit” carries legal significance in real estate transactions: a deposit paid by a purchaser is
(a) forfeitable to the vendor if the purchaser breaches the agreement, or (b) returnable to the purchaser
if the vendor breaches the agreement.
The Contract of Purchase and Sale will specify the amount of the deposit, who it is payable to, who will
hold it (in residential context, agents will typically hold the deposit in trust pursuant to RESA s. 28(2); in
commercial context, lawyers will typically hold the deposit pursuant to the contract), and how it will be
held (e.g. in an interest-bearing account). A well-drafted Contract of Purchase and Sale will also specify
what will happen to the deposit in the case of a breach by either of the parties to the agreement.
Deposit must be a genuine pre-estimate of damages. One of the purposes of a deposit is to serve as a
sum of money to which the parties (generally only the vendor) have immediate access to for damages.
For a purchaser’s deposit to be forfeited to a vendor, the deposit must be a “genuine pre-estimate
of damages” that the vendor will suffer if the purchaser breaches the agreement. If a deposit is not a
genuine pre-estimate of damages, it will be construed as a penalty – an extravagant, unconscionable
amount that it would unfair for the vendor to receive (Stockloser v Johnson). However, in residential
transactions, nobody tries to pre-estimate damages > default deposit is 10%.
Disputes about Deposits
If a purchaser breaches one of its obligations under an agreement, the purchaser has repudiated the K.
Repudiation gives the vendor two options:
1. Accept the repudiation, terminate the contract, and take the deposit (purchaser’s deposit
forfeited to the vendor). The vendor could then sue for damages up to point of termination.
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


Where contract contains a forfeiture clause: If the vendor takes the deposit, the
purchaser can try to argue, applying the test from Stockloser, that the amount was actually a
penalty (sum forfeited out of proportion to damage suffered; not a genuine pre-estimate of
damages) and that it would be unconscionable/unfair for vendor to keep deposit.
Where contract uses the term “liquidated damages”: The purchaser can try to argue
that the vendor is not allowed to claim damages that exceed the amount of the forfeited
deposit. But mere use of the words “liquidated damages” (or “penalty” or “deposit”) in an
agreement is not conclusive. Courts will try to determine the intention of the parties. If the
amount appears to be a genuine estimate of probable damages and it appears that the
parties intended to limit the depositor’s liability in the event of a breach to a fixed sum, a
court may enforce the liquidated damages clause. But the intention to limit the purchaser’s
liability must be very clear; including the term “liquidated damages” not enough, per Lozcal.
In Hughes v Lukuvka, the Court found that it was the intention of the parties to have the
deposit forfeited to the vendor as liquated damages (the amount was not a penalty).
The general rule is that a deposit will be forfeited to the vendor upon repudiation by
the purchaser, but this general rule can be overridden by the plain wording of the
contract. If the plain wording of the contract states that the purchaser’s deposit will be
forfeited to the vendor in the event that the vendor elects to terminate following repudiation
by the purchaser, and the vendor does not terminate (specific performance = enforcing the
K), the purchaser may be entitled to the return of their deposit, as per Winley Investments.
2. Continue to enforce the contract and not take the deposit, keeping open the possibility of
suing for specific performance or damages down the road. Note: if a vendor wishes to enforce
the contract, the vendor must not take the deposit because doing so would be inconsistent with
keeping the contract alive.
Lozcal v Brassos (1980) – ABCA
Main issue in this case was the effect of the phrase “liquidated damages” in the agreement between
vendor and purchaser: “if I [the purchaser] fail to comply with the terms hereinbefore agreed the
deposit shall be subsequently forfeited as liquidated damages”. The purchaser repudiated the
agreement, and the vendor accepted this repudiation, thereby terminating the contract. The vendor
then re-sold the property to a third party for a higher price. On the issue of reselling for a higher
price: the Court held that the vendor was entitled to retain the deposit on accepting the
purchaser’s repudiation “even if he resold the land at an increased price”, and if the vendor
resold the property at a loss, the vendor could recover the loss, less the amount of the deposit.
The Court then considered the nature of a deposit and liquidated damages. The Court said that it
would accept liquidated damages if they were a genuine estimate of probable damages and parties
intended to limit the depositor’s liability in the event of a breach to a fixed sum, but “if the sum was
fixed in terrorem, the provision will be considered to be a penalty” and the liquidated damages clause
would be unenforceable. The mere use of the words “liquidated damages” , “penalty”, or “deposit”
are not conclusive. The court must determine the intention of the parties > whether amount
was intended as a genuine deposit, a penalty, or as a limitation on the depositor’s liability. The
Court determined that the money in this case was a genuine deposit, not liquidated damages: “if the
intention were to limit the purchaser’s liability, that could have been easily said”.
Stockloser v Johnson (1954) – England CA
Purchaser paid the majority of the purchase price by making payments over time. The agreement
included a forfeiture clause: in the event that the purchaser defaulted, all the money already paid by
the purchaser would be forfeited to the vendor. The purchased defaulted, and then sought to have the
money already paid returned to him on the basis that the forfeiture clause was penal in nature. The
Court held that it was not unconscionable for the vendor to keep the money; Lord Denning suggested
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that the purchaser “gambled” and lost. If there is a forfeiture clause, and a buyer defaults, that
buyer cannot recover their money at common law (their money is forfeited to the seller).
However, a buyer may be able to recover their forfeited money in equity. Note: if there is no
forfeiture clause and the buyer repudiates the K, the buyer is entitled to recover his money at
common law if that money was as part payment towards the purchase price, not a deposit, subject to
the seller’s right to counterclaim for damages, per Howe v Smith. Courts may apply the equitable
remedy of restitution to relieve a party in default of a forfeiture clause (a) if the forfeiture
clause is penal in nature, in the sense that the sum forfeited is out of proportion to the damage
suffered, and (b) if allowing the other party to retain the forfeited money would be unjust and
unconscionable in the circumstances. Whether equity will relieve a party in breach of a forfeiture
clause depends on the circumstances of each case, e.g. if a party has only paid 5% towards purchase
price, equity may not step in, but if party has paid 90% towards purchase price, equity may step in.
Equity (restitution) will step in to ensure that a seller is not unjustly enriched by the buyer in default’s
inability to pay all the installments (e.g. buyer paid 90%, but can’t pay last 10%).
Hughes v Lukuvka (1970) – BCCA
Issue was whether $5000 deposit paid with an offer to purchase property in West Vancouver from the
vendor should be regarded as a penalty and therefore returned to the purchaser. The agreement
stated that time was of the essence, and if the purchaser was unable to meet the deadlines, the vendor
could “cancel this agreement, and in such event the amount paid by the purchaser shall be absolutely
forfeited to the owner as liquidated damages”. The purchaser was not able to get the necessary funds
in time, so the vendor exercised her right to cancel the agreement and claim the deposit. The
purchaser argued the deposit should be regarded as a penalty, and that the vendor’s retention of the
full amount would be unconscionable. The Court pointed to the following factors: (1) the parties
agreed that time was of the essence and that the deposit would be forfeited as liquidated damages if
the purchaser defaulted; (2) the deposit was approx 1/12 of the purchase price; (3) the completion
date was approx 3 ½ months after agreement entered into; (3) vendor agreed to pay her agent a
commission of 5% of total purchase price. Referring to Dunlop Pneumatic Tyre, the Court suggested
that “to justify interference” when the parties have expressly used the term “liquidated damages”
“there must be an extravagant disproportion between the agreed sum and the amount of any damage
capable of pre-estimate”. If an agreement expressly states that a deposit is to be forfeited to the
vendor upon default by the purchaser as liquidated damages, and the surrounding
circumstances suggest that this was as the parties intended, a court will not interfere unless
the sum is clearly a penalty.
Winley Investments v Milore Sales (1991) – BCSC
Standard form Contract of Purchase and Sale says: “Time shall be of the essence, and unless the
balance of the cash payment is paid… on or before the Completion Date, the Vendor may at the
Vendor’s option terminate this Contract and in such event the amount paid by the Purchaser
will be absolutely forfeited to the Vendor”. The purchaser paid $150,000 deposit. The purchaser
then complained to the vendor about flood damage to the property. The vendor maintained that the
damage had been repaired, but the purchaser disagreed. The purchaser then alleged that the vendor
had fundamentally breached the purchase agreement (anticipatory repudiation), and requested the
return of its deposit. The vendor sued the vendor for specific performance. The purchaser
counterclaimed for return of its deposit, arguing that because the vendor had not exercised its option
to terminate the K by pursuing specific performance, the deposit was not absolutely forfeited to the
vendor (“in such event”). The Court held that whether a purchaser is entitled to the return of
their deposit depends on the terms of the K, “the general rule being that, in the absence of an
agreement to the contrary, if the contract goes off by the default of the purchaser, the deposit,
being a guarantee of performance, becomes the property of the vendor even if he resells the
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land at an increased price”. But the express terms/plain wording of a K can override this
general rule (as it did in this case: the vendor had not elected to terminate the so the deposit was not
forfeited to the vendor).
Remember that there are three circumstances when an agent can touch deposit money held in trust:
1. If the transaction completes, the agent is entitled to their commission. Section 31(1) of RESA
permits the agent to deduct their commission from the deposit money held in trust. Further, Rule
5-15 of the Real Estate Council Rules provides that a licensee’s remuneration can be paid out of a
trust account on the date when the documents effecting transfer are submitted to the Land Title
Office for registration. The rest of the money gets paid towards the purchase price.
2. If the transaction falls apart and the parties consent to return the deposit to the purchaser or
forfeit the deposit to the vendor.
3. If there are adverse claimants to the deposit money, s. 33 of RESA provides that an agent can pay
the deposit money into the BC Supreme Court (to let the court decide/resolve the dispute).
Interim Period
The interim period is the time after a Contract of Purchase and Sale has been signed and before closing. As
per Lysaght v Edwards, the moment an agreement is signed and becomes enforceable, the benefit interest
in the property passes from the vendor to the purchaser and the vendor takes on the role of a trustee for
the purchaser (the vendor retains the legal interest in the property until closing, but has an obligation to
give the land to the purchaser in the condition contracted for).
Risk clause in the standard form Contract of Purchase and Sale. Standard form contract provides:
“All buildings on the Property and all other items included in the purchase and sale will be, and remain, at
the risk of the Seller until 12:01 a.m. on the Completion Date. After that time, the Property and all
included items will be at the risk of the Buyer.” This risk clause reflects the trustee relationship between
the vendor and the purchaser. Even though the purchaser becomes the beneficial owner from the point of
contract formation, the vendor remains a trustee for the purchaser until closing. If anything happens to
the property in the interim period before closing, the vendor as the trustee and legal interest holder (not
the purchaser, as the beneficial interest holder) is responsible for the damage/risk.
Paying the deposit is usually the first step in the interim period. If there are conditions that hold the
contract in suspension, there may be two deposit payments: an initial payment of a lower amount to
show that the purchaser is serious about entering into the agreement, and larger deposit to be paid once
conditions have been fulfilled.
Relationship between Vendor/Purchaser
Lysaght v Edwards (1875-76) – England
The moment you have a valid Contract of Purchase and Sale, the vendor becomes a trustee in equity
for the purchaser and the beneficial interest in the property passes to the purchaser. In the
absence of express terms stating otherwise, the vendor retains the right to the purchase money, a charge
or lien on the estate for security of that purchase money, and possession of the estate until the purchase
money is paid.
Rich v Krause (1975) – BCSC
An application by the wife of the deceased purchaser for an order vesting legal title in the property to her.
The vendor disappeared during the interim period (still holding the property in trust for the purchaser).
The wife had beneficial title transferred to her upon her husband’s death, and the wife continued to fulfill
her obligations under the Contract of Purchase and Sale (monthly payments to the vendor’s account).
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The Court held that the wife was entitled to a legal transfer of title because the vendor was
holding the property in trust for the purchaser and the vendor could no longer be found.
Nature of the Purchaser’s Interest
Martin v Virtanen (1997) – BCCA
The issue in this case: what is the nature of the interest, if any, acquired by a person who has contracted to
purchase land, but who has yet to complete the purchase? A third party creditor brought a claim in relation
to property that was (unbeknownst to them) also the subject of a Contract of Purchase and Sale between
the vendor (the debtor) and the purchaser. Judgment was rendered in favour of the creditor during the
interim period, before the transaction closed and the purchaser registered his legal interest. The Court
held that Lysaght remained good law (beneficial ownership is transferred to the purchaser when
the contract is formed, and the vendor becomes a trustee to the purchaser), and (a bit reluctantly)
held that a creditor has no claim against a property once beneficial ownership transfers from the
vendor (who owed the debt) to the purchaser (nemo dat: the creditor could not claim an interest
that the vendor did not have). [though this whole matter could have been avoided had the purchaser’s
notary done the proper pre- and post-index services at the Land Title Office > had this encumbrance been
discovered, the purchaser could have demanded specific performance, that the vendor remove the
encumbrance]
Conditions
When are used in real estate transactions, they may have the unintended effect of either converting what
condition precedents was intended to be a legally enforceable Contract of Purchase and Sale into an
option or making the Contract of Purchase and Sale unenforceable.
What’s the difference between an option and a condition precedent?


An option is a completely discretionary call to purchase a property before a determined time. The
purchaser can choose to either exercise their discretion to purchase or not exercise their discretion.
A condition precedent is not completely discretionary. With a condition precedent, the purchaser
retains discretion, but must exercise their discretion if a condition precedent is met/removed.
There is a spectrum of condition precedents! purely subjective <<<< mixed >>>> purely objective
MIXED SUBJECTIVE/
OBJECTIVE CONDITIONS
OBJECTIVE CONDITIONS/
TRUE CONDITIONS PRECEDENT
Conditions the fulfillment of which
depends on the subjective state of mind of
the parties. In other words, conditions
that involve no limit to discretion.
Conditions the fulfillment of which
depends on the subjective state of mind
of the parties, subject to a
reasonableness standard. In other
words, conditions that involve
discretion limited by reasonableness
Conditions the fulfillment of which
depends in whole or in part on the
act or will of a third party (someone
other than the purchaser or
vendor). In other words, conditions
that involve no discretion.
“…in the purchaser’s sole discretion…”
“subject to the purchaser being satisfied
with physical inspection acting
reasonably”
“subject to approval by board of
directors” (third party board controls
the outcome) (Canada Post)
“subject to environmental due diligence,
limited by reasonableness”
“subject to obtaining rezoning of
property” (third party city controls the
outcome) (Zhilka, Dynamic Transport)
SUBJECTIVE CONDITIONS
What is it?
“subject to the purchaser being satisfied with
the physical inspection with full discretion”
Examples
“subject to the purchaser’s detailed
inspection of the building… by the
purchaser’s architect and/or engineer…,
results of such inspection to be to the sole
satisfaction of the purchaser” (Kitsilano
Enterprises)
“subject to the purchaser’s review of all
leases, contracts, plans and surveys and
the state of title to the lands… to be to the
sole satisfaction of the Purchaser” (Kitsilano
“subject to reasonable title due diligence”
“subject to financing at a reasonable rate”
“subject to the purchaser being able to
arrange satisfactory financing”
(Griffin, see below)
“subject to: …the purchaser shall have
approved… an engineering, soils, and traffic
reports…” (Tau Holdings; see below)
“subject to financing by XBank at a
specific rate” (third party XBank
controls the outcomes)
*In Dynamic Transport, the SCC
implied a true condition precedent
that the contract be subject to
subdivision (even though the
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SUBJECTIVE CONDITIONS
Enterprises)
“subject to environmental due diligence
with full discretion”
“subject to financing at the discretion of the
purchaser”
“subject to the purchaser arranging financing
for the acquisition of the property upon terms
and conditions satisfactory to the Purchaser”
(Kitsilano Enterprises; but note similarity to
Griffin where court held “satisfactory
financing” was mixed)
“subject to title due diligence with full
discretion”
The Contract of Purchase and Sale is
unenforceable (you have an option, at
best). The formation of a valid contract
requires a meeting of the
minds/contractual intent > no such
intent where one of the parties retains
full discretion. The Court in Wiebe
suggested that a condition precedent is
too vague and the contract unenforceable
if the condition depends on the “whim,
fancy, like, or dislike” of one of the
parties, and said: “While a purchaser
must use his best efforts in doing such
things as obtaining financing, getting
subdivision or selling his own home,
there is no way the law can test whether
he used his best efforts in deciding if he
really likes a piece of property or not.”
Effect &
Case Law
However, an exchange of valuable,
non-refundable consideration
converts a Contract of Purchase and
Sale with a subjective condition
precedent into an OPTION – a binding
agreement whereby one party is bound
to sell to the other party if that other
party chooses to exercise its option to
buy. A well-drafted agreement that
contains a purely subjective condition
will include consideration to avoid one
party being able to walk away from the
agreement.
Even in the absence of valuable, nonrefundable consideration, a court may
construe a document that contains
purely subjective conditions as an
UNACCEPTED OFFER (Kitsilano
Enterprises). A court may find that the
vendor committed itself to sell (making
an offer to the purchaser); if the
purchaser waived or fulfilled a condition
before the vendor withdrew its offer there
would be an enforceable, binding
Contract of Purchase and Sale. Exception:
where an agreement expressly provides
that once accepted it cannot continue as
an offer the principle that an interim
agreement w/ a purely subjective
condition precedent is merely an
unaccepted offer cannot apply.
The words “to the sole satisfaction of
MIXED SUBJECTIVE/
OBJECTIVE CONDITIONS
“subject to the plaintiff purchaser selling
another property in Port Moody” (Wiebe;
see below)
*Unless the Contract of Purchase
and Sale makes it really clear that a
condition is purely subjective,
courts will be inclined to interpret
that condition as a mixed
subjective/objective condition. This
reflects courts’ desire to preserve
agreements if they can > they will try to
read in a reasonableness limitation if
possible.
Suspend the obligations of the parties
until the condition has been waived or
satisfied. The Contract of Purchase is
enforceable because the court can use
the reasonableness standard to
determine whether condition has been
fulfilled.
Adding the words “for the sole
benefit of the purchaser” to a
condition does not make the
condition purely subjective (Griffin).
Condition precedent in Griffin was:
“subject to the purchaser being able to
arrange satisfactory financing”. The K
also stated that this condition was for
the “sole benefit of the purchaser”.
Purchaser did not get financing he
considered satisfactory, so failed to
close and then argued K unenforceable
b/c condition was purely subjective.
Vendor argued K enforceable b/c
condition was mixed. BCCA held that
words for the “sole benefit of the
purchaser” did not make this condition
a purely subjective one… the condition
was mixed, and required that the
purchaser obtain financing
“satisfactory to a reasonable person
with all the subject but reasonable
standards of the particular purchaser”.
Since the purchaser had failed to obtain
reasonably satisfactory financing, he
breached the contract.
The words “the purchaser shall have
approved” creates a mixed
subjective/objective condition, not a
purely subjective condition (Tau
Holdings). In Tau Holdings, the BCCA
held that a condition precedent that
said the purchaser needed to approve
engineering, soils and traffic reports
was not purely subjectively – the
condition obliged the purchaser “to
consider… the reports and not to reject
them arbitrarily but only on reasonable
specified grounds”.
*A purchaser will push for full
discretion conditions, whereas a
vendor will push for mixed
OBJECTIVE CONDITIONS/
TRUE CONDITIONS PRECEDENT
Contract of Purchase and Sale was
silent!) > the SCC further implied an
obligation that the vendor use its
bests efforts to obtain such
subdivision (since the vendor was
the only one who could apply for
the subdivision).
The obligation to close is
unenforceable (held in
suspension) until the true condition
precedent has been met.
Zhilka: “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. This is a true
condition precedent – an external
condition upon which the existence
of the obligation depends. Until the
event occurs there is no right to
performance on either side. The
parties have not promised that it
will occur. In the absence of such a
promise there can be no breach of
contract until the event does
occur.”
Kitsilano Enterprises: if a condition
is a true condition precedent, “the
agreement cannot be turned into a
binding agreement until the
conditions are removed and
remains an offer until then”.
However, courts may imply an
obligation on one or both parties
to use their best efforts to bring
about the fulfillment of a true
condition precedent (Dynamic
Transport). In Dynamic Transport,
the SCC implied an obligation on
the vendor to apply for subdivision
(court able to determine what
constitutes “best efforts” to apply
for subdivision b/c the application
procedure was set out in the
Planning Act). If a party fails to
fulfill an implied obligation, that
party is in breach of the of the
contract (the other party can claim
specific performance to get the
party in breach to use its best
efforts, or damages).
As long as there is evidence that the
parties intended to make a
contract, merely including a true
condition precedent will not affect
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SUBJECTIVE CONDITIONS
the purchaser” create a purely
subjective condition precedent
(Kitsilano Enterprises). In Kitsilano, the
K contained several conditions that gave
the purchaser full discretion and the
right to waive them at any time. The
Court held that the conditions “fall within
the fourth category set out by Lambert JA
in the Griffin case which categorizes the
transaction as “satisfactory to the
particular purchaser with all his quirks
and prejudices, but acting honestly”. It is
my view that this turns the agreement
into an offer and there is no mutuality of
intention to support a binding
agreement.”
MIXED SUBJECTIVE/
OBJECTIVE CONDITIONS
subjective/objective conditions.
OBJECTIVE CONDITIONS/
TRUE CONDITIONS PRECEDENT
the existence of the agreement.
“Subject to the purchaser selling
another property” is a mixed
subjective/objective condition.
The Court in Wiebe found that it was
not too difficult to determine whether
the purchaser had used his best efforts
to sell his home. The the Court
*A purchaser will push for full discretion
conditions, whereas a vendor will push
for mixed subjective/objective
conditions.
A purely subjective condition
precedent can be waived by a party, if
that condition benefits that party.
Can the
condition be
waived?
If the
condition is
not waived,
what happens
if it is not
satisfied?
The effect of waiving a purely subjective
condition precedent is that the
unaccepted offer becomes an accepted
offer, and the Contract of Purchase and
Sale becomes enforceable. A condition
cannot be waived by a party if the
condition is not their benefit. Is Zhilka
the authority for this?
If a purely subjective condition is not
fulfilled by the party responsible for
fulfilling it (and not waived), the effect is
nil. In the absence of valuable
consideration (giving rise to an option),
there will be no binding agreement.
A mixed subjective/objective
condition precedent can be waived
by a party, if that condition benefits
that party.
The effect of waiving a mixed
subjective/objective condition
precedent is nil – the contract remains
enforceable. A condition cannot be
waived by a party if the condition is not
their benefit. Is Zhilka the authority
for this?
If a mixed condition is not fulfilled
by the party responsible for fulfilling it
(and not waived), that party will be in
breach of the contract.
Saying that a condition has been
satisfied is not sufficient (Dallas). In
Dallas, a lease agreement contained
two conditions in favour of the
shopping centre developer: that they
would obtain financing, and that they
would verify hard construction costs.
The developer satisfied the second
condition, but did not actually obtain
financing (awaiting final approval),
though they told Buy-Low foods that
they had. The Court held that the lease
was null and void.
A true condition precedent
cannot be waived by either
party, even if the condition is for
the sole benefit of one of the
parties (Zhilka). Exceptions to this
general rule: the K expressly
provides that the true condition
precedent can be waived, or s. 54 of
the Law and Equity Act is satisfied
(see below).
If a purely objective condition is
not fulfilled, there will be no
enforceable contract.
However, if courts imply an
obligation on a party to use its
best efforts to bring about the
fulfillment of a true condition
precedent (as in Dynamic
Transport), and the party fails to
apply its best efforts, that party
will be in breach of the contract.
Section 54 of the Law and Equity Act: an exception to general rule that a true condition precedent cannot be waived
Section 54 of Law and Equity Act (outcome of Zhilka) provides that a true condition precedent can be waived, even if the K is silent, if the
following 3 conditions are met:
1. The true condition precedent benefits only the party who wants to waive it;
2. The contract is capable of being performed without fulfilling the condition precedent [in Zhilka, s. 54 would have been inapplicable b/c
the portion of the property could not have sold without a subdivision]; and,
3. Waiver is done either before the time stipulated for fulfillment of the condition, or if no time is stipulated, in a timely manner.
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Wiebe v Bobsien (1984) – BCSC
Contract for purchase and sale of a property, subject to the condition that the purchaser would sell
his Port Moody residence by a certain date. The vendor backed out of the agreement. The purchaser
sued for specific performance, arguing that the contract was enforceable. The vendor argued that the
contract was unenforceable because of the condition precedent. The Court referred to another case,
Black Gavin, in which the agreement was subject to five conditions, including “inspection and
approval of the premises by the purchaser” and “approval of the plaintiff’s financial statements by the
purchaser”. The Court in Wiebe noted: “While a purchaser must use his best efforts in doing such
things as obtaining financing, getting subdivision or selling his own home, there is no way the law can
test whether he used his best efforts in deciding if he really likes a piece of property or not. If a
condition precedent is vague because it depends on the “whim, fancy, like, or dislike” of one of
the parties, the contract is unenforceable. However, in this case, it was not too difficult for the
court to access whether the purchaser had used his best efforts to sell his home to remove the
condition precedent. The Court in Wiebe said that it is a general rule in real estate transactions
that “a condition precedent which must be performed by the purchaser will not usually
prevent the formation of a contract but will simply suspend the covenant of the vendor to
complete until the condition precedent is met by the purchaser”. The completion of the sale was
suspended until the purchaser sold his Port Moody home; when this sale occurred, the vendor was
then contractually bound to complete the transaction. Specific performance ordered in favour of the
purchaser.
Warranties/Representations
The purpose of representations and warranties in a contract is to apportion risk about the subject
matter of the contract. A savvy purchaser will try to have the vendor take on most of the risk.
Representations
What is it?
A representation is something that speaks about a past or present
status. Everything that has happened to the property, up until the
present moment.
A warranty is a statement that speaks about
something that will or could happen in the
future.
The law does not imply representations.
The law may sometimes imply warranties. E.g.
the law will imply the warranty that a property
is fir for habitation if that property has been
recently constructed.
A vendor will want to represent as little as possible (allocating most of
risk to the purchaser). The purchaser will want the vendor to say as
much as possible (allocating most of the risk to the vendor).
Examples
Warranties
“The vendor represents to the purchaser…”
“…that there is no current litigation against the property.”
“…that the vendor is a corporation, duly incorporated in BC.”
“…. that the vendor is not blocked in selling the property.”
“…that the vendor has all permits necessary to operate the property.”
“…that there are no liens that will affect title.”
“…that there is no bankruptcy or insolvency of the vendor pending.”
“The vendor warrants to the purchaser that
there is no lien or debt that could become a lien
that would affect title to the property.”
“The vendor warrants to the purchaser that
there is no claim that exists that could become
litigation against the property.”
*Purchasers can also make warranties about
themselves, e.g. their ability to close.
“…that the vendor is the owner, and the only owner, of the
property.” [necessary for certainty of parties! purchaser will want to
know that the vendor is the legal and beneficial owner of the property]
Other representations:
- Physical state of the property (in good repair, no structural
problems, machinery working, no asbestos, no contamination).
- Status of tenants (re: their leases, rents, businesses).
- Electronic connection of property (tenants can do mail orders from
property; tenants not connected to unsavoury internet sites, e.g.
porn, gambling).
- Aboriginal claims.
*Purchasers can also make representations about themselves, e.g. their
financial state.
27
What
happens if
false or
breached?
If a representation is made but turns out to be wrong/false (= a
misrepresentation), the innocent party’s remedy is damages (looking
backward) for negligent and innocent misrepresentations and rescission
for fraudulent misrepresentations.
If a warranty is made but then breached, the
innocent party can sue for damages (looking
forward).
In 0759594 BC Ltd, the BCCA held that it is possible, depending on the
language of a representation, for a party making a representation to be
liable for information that it did not even know. In 0759594 BC Ltd, the
vendor gave the following representation: “So far as the vendor is aware,
the vendor has disclosed to the Purchaser all material information
pertaining to the material lands, whether solicited by the Purchaser or
not. […] All material information pertaining to the purchased land is
set out in this agreement.” The Purchaser discovered that the land was
affected by local riparian regulations. The Court held that the plain
language of the contract made it clear that the vendor represented that it
would tell the purchaser everything about the property. So even though
it may not have known about the riparian rights issue, the vendor made
a false representation.
Representations and warranties are statements about status, and do not impose obligations on parties to
do something. In contrast, a covenant is a pledge or promise that a party will either do something or has
done something. E.g. “The vendor covenants to, on the day of closing, ensure that all the representations
and warranties will be true.” A breach of a covenant in an agreement is grounds for terminating that
agreement.
Aboriginal Title
A purchaser will want representations from a vendor about the existence of any outstanding First
Nation claims on the property. The fact that there may be an aboriginal title claim over property is an
encumbrance on the property holder’s rights.
The idea of Aboriginal Title stems from the historical use and occupation of First Nations. Our use of the
land interferes with this historical use and occupation, and our idea of fee simple ownership collides with
other forms of access, use, and ownership of land. The alienation of others is problematic.
Before 1982, there was a mishmash of ways to deal with First Nations claims. In the east of Canada, there
several treaties entered into with First Nations. In the west, only reserves set up (federally-owned Crown
land, administered by Indian and Northern Affairs); no treaties.
In 1982, all the rights of First Nations were enshrined in the Constitution. But the Constitution does not
define what these rights are. Also, after 1982 it became very difficult to delete/undo any Aboriginal right.
Sparrow: one of the first SCC cases that defined Aboriginal rights. This case revolved around “use” rights
– fishing rights, hunting rights – which are site-specific rights.
Delgamuukw: the first SCC case to identify Aboriginal Title, and how it relates to the use and occupation
of an area. The Court in Delgamuukw identified Aboriginal Title as a communal right to land that could
only be surrendered by First Nations to the Crown – something in between fee simple and a personal use
right. Since Delgamuukw, courts have affirmed that any interference with Aboriginal rights must have a
strong justification (there must be a compelling and substantive objective), and this interference must be
accompanied by deep and meaningful consultation (what qualifies as “consultation” will depend on the
strength of the Aboriginal claim to the land and the seriousness of the infringement). This obligation to
consult is on the Crown, not third parties, though the Crown will often pass this obligation on to third
parties. There is also an accommodation requirement (usually takes the form of money). Today, the
Crown will typically involve industry (or whoever the user of Crown land will be) to provide
compensation, e.g. money, jobs, improvements to community.
28
A purchaser planning on developing land will also want representations or warranties from a
vendor about middens (village dump sites). You cannot undertake new development on a midden site
unless it has been thoroughly excavated by an archeologist overseen by the local First Nation. Example:
midden under the Arthur Laing bridge has delayed development for over a decade. The City of Vancouver
is the only municipality that maintains a registry of middens (so you can do a check with the City). The
Province itself has an archeological branch, and they maintain a registry of archeologically significant
sites, but not of middens in particular.
Environmental Issues
A purchaser will want to get clear representations and warranties from a vendor regarding the
environmental state of a property, especially regarding contamination (and also seek indemnities
and releases from the vendor!).
The Environmental Management Act is the main governing statute that creates liability for the clean up of
contamination on the registered owners of the property. There are two regimes under the Act:
1. Clean up order: under the Environmental Management Act, if the Province determines that a site
has been contaminated, the Province has the power to order the current registered owner, every
prior registered owner, and every party that had control of the property (including tenants,
mortgaging banks, property managers) to undertake clean up of this contamination.
2. Indemnity regime: under the Environmental Management Act, third parties brings claims against
each other for losses suffered as a result of contamination. Examples:
 If you purchase property, you can sue an earlier owner for damages that you suffer as a
result of contamination.
 If your neighbour dumped gasoline on their property, and over time this gasoline migrated
to my land, you can bring an action against your neighbour for clean up of your land.
Indemnities & Releases
A purchaser will want to seek indemnity and releases from the vendor, and the vendor will want
to seek releases from the purchaser.
Examples:




“If a representation turns out to be untrue, and I (the purchaser) suffer damage, you (the vendor)
promise to compensate me for my loss.”
“Irrespective of the Environmental Management Act, you (the vendor) will pay me if I discover
contamination in the future that you caused.”
“You (the vendor) agree not to sue me (the purchaser) for things in the future.”
“You (the purchaser) agree not to sue me (the vendor) for things in the future.”
Hold Backs
Another form of security for purchasers: maintaining a hold back. A purchaser may hold back part of the
purchase price on closing, for a certain period of time, as security for damages that results due to a
misrepresentation.
Doctrine of Merger
After closing, the doctrine of merger provides that all of the lesser agreements, covenants, promises, etc
in a Contract of Purchase and Sale merge into a “greater promise”. This means that all representations
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and warranties in an agreement are “spent” upon closing, unless you include a provision that allows these
representations and warranties to “survive” completion. Section 18 of standard form Contract of Purchase
and Sale provides: “There are no representations, warranties, guarantees, promises or agreements other
than those set out in this Contract…, all of which will survive the completion of the sale.”
FINANCING THE PURCHASE
Mortgages
Nature of a Mortgage
Mortgages have a dual nature:
1. A mortgage is a contractual/personal covenant to pay; and,
2. A mortgage is security for the borrower’s debt.
The dual nature of mortgages is important because of Land Title Act, s. 231, which says that a mortgage is
a charge against title (not a transfer of title).
The dual nature of mortgage allows for renewal of mortgages without needing to create a totally “new”
mortgage upon renewal (say at the 5 year mark), which might adversely affect the original mortgagee’s
priority vis-à-vis other creditors unless the mortgagee obtained postponement agreements. The Court in
Potash v Royal Trust said: “There was… no inconsistency in Royal’s position that the renewals might be
viewed as new mortgages for the purposes of s. 10 as between borrower and lender while affecting not at
all the priority of the mortgage vis-à-vis third parties arising from the original grant of the land as
security. This was merely a reflection of the dual aspect of a mortgage.”
History of a Mortgage
Historically, mortgages were a transfer of land from the borrower to the lender. The lender held legal
titled, and the borrower retained the right of possession. The lender owned the land until the mortgage
was repaid. This was a contractual arrangement: a promise to repay in exchange for a promise to return
the land. At common law, a borrower would get title back if they performed their obligations strictly in
accordance with the mortgage agreement; however, if a borrower defaulted, the borrower might lose the
property and still be liable to the lender for the debt. Draconian. This is where equity stepped.
Borrowers have a right of redemption/equity of redemption. A borrower owns this right to redeem,
even though they do not own the land itself. This right of redemption can be sold, transferred, or
mortgaged. The right of redemption is an interest less than fee simple, but still an interest in land. Equity
will enforce a borrower’s right of redemption even if a borrower has lost his/her contractual right to get
the land back. A borrower cannot contract out of the equity or redemption, but it can be extinguished or
lost by: lapse of time, foreclosure, or sale of land to a third party.
Mortgages in BC’s Torrens System
BC’s Torrens System is a land registration system in which the government is the keeper of all land and
title records, and registered land title serves as a certificate of full, indefeasible and valid ownership.
Section 231 of the Land Title Act provides that a mortgage is a charge on the land (something less
than fee simple ownership in land; something less than a transfer of land, as mortgages historically have
been). Section 231 further preserves the common law concept of transfer of title and the equitable
concept of right of redemption.
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The Land Title Act does not recognize equitable interests (exception: a second mortgage is considered
and equitable mortgage).
Legal mortgages will always be registered in the Land Title Office. A registered mortgage appears on title,
and creates a registered interest in land – this provides lenders with a lot of power and safety in terms of
recovering the borrower’s debt.
North Vancouver (District) v Carlisle (1989) – BCCA
Borrower argued that a mortgage does not transfer legal estate to the lender (mortgagee), but merely
creates a charge upon it in the lender’s favour. The mortgage in question contained words of transfer, and
so transferred legal title to the lender: “the mortgage in question does convey it to the mortgagee… by
mortgage legal title passes to the mortgagee subject to an equity of redemption in the mortgagor”. The
Court held that a mortgage in BC can still act as a transfer of title subject to the borrower’s right of
redemption.
Overview of a Mortgage
Borrower’s Obligations
A borrower has the following obligations under a mortgage:
1.
2.
3.
4.
Pay the principle amount owing, usually on a monthly basis as part principle/part interest. At the end a term (typically 5 years),
there will be a balance remaining that the borrower can either refinance or pay off.
Keep the property in a reasonable state of repair.
Pay real property taxes (residential context). If a lender feels that you are not reliable, they may pay the property taxes out of
your mortgage proceeds. If property taxes are not paid, the government can put a lien on the property and sell the property to
recover the money owing (lenders are very concerned with this!).
Insure the property.
Consequences of Default
If a borrower defaults, a lender can do the following:
1.
2.
The lender can sue the borrower.
The lender can start foreclosure proceedings to seize the property.
Right of Redemption
A borrower has a right of redemption. If a borrower defaults, this means that the borrower has a right to stop the property from being
seized by the lender once foreclosure proceedings have commenced. Typically, this is a 6 month window in which to refinance or sell the
property to the lender. If a lender accepts the property, the borrower is released from their debt (however, the lender is under no obligation
to take the property from you, especially when the market is down – if this is the case, the borrower has a personal obligation to come up
with the shortfall).
Elements of a Mortgage
Comparing & Contrasting Legal and Equitable Mortgages
Legal Mortgages
A legal mortgage is a conveyance of land as security for the payment of a debt. A legal mortgage has a very specific two-part form, provided
for in s. 225 of the Land Title Act: (1) the Form B, a two-page form that sets out all the basic, essential elements of the mortgage; and, (2) the
contractual terms of the mortgage, which can include prescribed standard mortgage terms, filed standard mortgage terms, and express
terms. There are four types of legal mortgages: (1) conventional mortgages; (2) high ratio mortgages; (3) collateral mortgages; (4) vendor
takeback mortgages, as in Norfolk v Aikens. As per s. 231 of the Land Title Act, a legal mortgage is registerable as a charge on the land (it does
not pass legal title from the borrower to the lender). For registered interests, priority is governed by the date and time of registration
(unless the parties express contrary intention, or in the event of fraud), as per s. 28 of the Land Title Act.
Equitable Mortgages
An equitable mortgage is, by definition, a contract that creates, in equity, a charge on a property. An equitable mortgage does not pass legal
title. Section 33 of the Land Title Act provides that an equitable mortgage is not registerable. This reflects the fact that our Torrens System
does not recognize a split in title (legal title + beneficial title). Our Torrens System presumes that the registered owner of a piece of property
is both the legal owner and the beneficial owner. However, a second mortgage (= an equitable mortgage) is registerable as a charge on the
land, like the “first” legal mortgage. With a second mortgage, the second lender’s security is its ability to redeem the property against the first
lender in the event of a default (in other words, the second lender holds the equitable right of redemption as its security). Other equitable
mortgages include: where the lender agrees to give a borrower money in exchange only for their promise to repay (the lender in this case is
31
an unsecured creditor), or where the borrower has given their duplicate certificate of title to a lender in exchange for financing (the lender in
this case is also an unsecured creditor). In terms of priority, an unregistered equitable mortgage may have priority over all judgments
registered on title, provided that equitable mortgage was created before the judgments were registered, as per Yeulet v Matthews. However,
s. 20 of the Land Title Act provides that unregistered interests are enforceable between parties, but unregistered interests do not have
priority over registered interests. For registered interests, like a second (equitable) mortgage registered as a charge, priority is governed by
date and time of registration (unless the parties express contrary intention, or in the event of fraud), as per s. 28 of the Land Title Act.
Common Elements b/w Legal and Equitable Mortgages
1.
EQUITY OF REDEMPTION: the right of the borrower (mortgagor) who has obtained a loan secured by a pledge of their real property
and then defaulted on their obligations to prevent foreclosure proceedings and redeem the property by payment of the full debt.
2.
COLLATERAL ADVANTAGE: Where a contracting party uses his stronger bargaining position to obtain terms that are
disproportionately advantageous to him, over and above the benefits conferred upon him by the core of the mortgage contract.
3.
CLOG ON EQUITY/RESTRAINT ON TRADE: Any stipulation or penalty that clogs the equity of redemption, or is repugnant to it, is void.
Legal Mortgage
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. The most common type of mortgage.
A legal mortgage has a very specific two-part form, provided for in s. 225 of the Land Tittle Act:
Part 1: The Form B, s. 225(3) of the Land Title Act. The Form B is a two-page form that sets out all
the basic, essential elements of the mortgage: the parties to the mortgage (lender and borrower), the
legal description of the borrower land, the principal amount, the interest rate, the due dates.
Part 2: The contractual terms of the mortgage, s. 225(5) of the Land Title Act. Section 225(5)
provides that there are three different types of terms:
1. Prescribed standard mortgage terms: the simplest contractual terms, referred to in s. 227
of the Land Title Act. These standard mortgage terms are prescribed by statute. A bank or
lender can adopt all of these terms simply by stating so in the Form B.
2. Filed standard mortgage terms: the standard mortgage terms drafted and used by banks,
financial institutions, law firms, etc, referred to in s. 228 of the Land Title Act. These
standard mortgage terms must be filed with the Land Title Office. Section 229 of the LTA
provides that a lender must provide a true copy of standard mortgage terms to a borrower
and obtain an acknowledgement that the copy has been received, or else the prescribed
standard mortgage terms referred to in s. 227 will apply (consumer protection measure).
3. Express terms: unique mortgage terms for a specific transaction.
Four types of legal mortgages
1. Conventional Mortgage: put down 25% of value, mortgage 75%
2. High Ratio Mortgage: put down as little as 5%, mortgage up to 95%; high ratio mortgages must
be backed by Canada Mortgage and Housing Corporation insurance (mortgagor pays a fee for this).
3. Collateral Mortgage: a mortgage that is collateral to another obligation, e.g. a mortgage secured
for a promissory note.
4. Vendor Takeback Mortgage: where a vendor finances a portion of the property for the
purchaser (as was the case in Norfolk v Aikens); happens rarely in residential context and more
frequently in commercial context.
Floating charge on land: typically in a commercial context and where a borrower has large assets, a
lender may provide financing in the form of a floating charge. A floating charge is a contractual agreement
that does not attach to any specific piece of property. Section 239 of the Land Title Act provides that a
floating charge must not be registered unless it is attached to a specific mortgage.
32
Equitable Mortgage
An equitable mortgage is a contract that creates, in equity, a charge on a property. An equitable
mortgage does not pass legal title. Section 33 of the Land Title Act provides that an equitable mortgage is
not registerable. Torrens System does not recognize a split in title (legal title + beneficial title). Torrens
System presumes that the registered owner of a piece of property is both the legal owner and the
beneficial owner. But a second mortgage (= and equitable mortgage] is registerable as a charge!
Three ways to create an equitable mortgage
1. Mortgage of equitable or future interest: a second mortgage, where the second lender’s
security is its ability to redeem the property against the first lender in the event of a default (the
second lender holds the equitable right of redemption as its security). *Registerable as a charge!
2. Instrument not sufficient to convey a legal interest: an agreement that cannot be registered in
the Land Title Office, but by which you promise to execute the equitable mortgage. This type of
equitable mortgage is enforceable, but the lender is an unsecured creditor (secured creditors have
priority over unsecured creditors).
3. Deposit of duplicate title: duplicate title is a physical instrument that you can get from the Land
Title Office, pursuant to s. 176 of the Land Title Act (a paper that represents your legal interest in
land) > taking this certificate out of the Land Title Office “locks” title (you cannot convey or further
mortgage the property until the certificate is returned to the Land Title Office). Giving duplicate
certificate of title to a lender in exchange for financing creates an equitable mortgage. But the
lender is an unsecured creditor (secured creditors have priority over unsecured creditors).
Royal Bank of Canada v Mesa Estates Ltd (1985) – BCCA
Mesa gave RBC a duplicate certificate of title as security for the fulfillment of all its obligations, present
and future. But the document held by RBC did not contain the words “to create an equitable mortgage”,
nor did it contain words of mortgage, charge, seizure, sale, or foreclosure. RBC tried to argue that the
duplicate certificate of title created an equitable mortgage, so that it could take priority over Mesa’s other
(registered) judgment creditors. The Court held that there is no presumption in BC that the deposit
of a duplicate certificate of title shows an intention to create an equitable mortgage. The Court
suggested that duplicate indefeasible title could be deposited with a bank for a variety of reasons:
(1) for safekeeping; (2) as a negative covenant/as security for an undertaking not to sell or
mortgage land until an obligation to the bank is discharged or released; or, (3) to create an
equitable mortgage. Lambert JA said: “In title deed systems, the deposit of the title deeds creates a
presumption of an intention to create an equitable mortgage. […] But there is no similar presumption in
British Columbia arising from the deposit of a duplicate indefeasible title. The reason is that, in British
Columbia, it is not any more reasonable to infer an intention to create an equitable mortgage than it is to
infer an intention not to do so =, but to accomplish some other purpose. […] …there is nothing in the
documents to indicate that it was the intention of Mesa Estates Ltd or the Royal Bank of Canada that the
deposit should charge the land by way of equitable mortgage.”
North West Trust Co v West (1989) – ABCA
Alberta court reached opposite conclusion of BC court in Mesa based on similar facts. Three legal
mortgages registered on title. Borrower asked for a fourth mortgage to pay arrears on the other three.
Borrowed deposited a duplicate certificate of title with the bank, and also granted it a promissory note
and title agreement. The issue was whether this created an equitable mortgage. The Alberta court held
that there is a firm presumption that depositing a duplicate certificate of title with a lender
creates an equitable mortgage. This presumption requires specific evidence to the contrary to
disprove (can look at the totality of the transaction, not just the documents, to ascertain whether there is
33
a contrary intention, but silence alone does not displace the presumption). The Court held that the
objective of this deposit of duplicate certificate title was to charge the lands by way of equitable mortgage.
Yeulet v Matthews (1982) – BCSC
A judgment creditor (whose judgment is registered) takes priority subject to all charges and equities. This
means that (unregistered) equitable mortgages have priority over all judgments registered on title.
Three Common Elements of Mortgages
4. EQUITY OF REDEMPTION
The right of the borrower (mortgagor) who has obtained a loan secured by a pledge of their
real property and then defaulted on their obligations to prevent foreclosure proceedings
and redeem the property by payment of the full debt.






This equity of redemption must be exercised by the borrower within a certain time
period, typically ~6 months.
The mortgagor’s right of redemption is based on the equitable principle that a borrower
should have a final opportunity to keep his/her property, even if they have failed to make
payments on the mortgage, since the property will be sold in foreclosure proceedings.
Right of redemption arises when mortgage agreement is entered into, but only
becomes exercisable when the contractual rights have expired (default by borrower).
Equity of redemption cannot be contracted out of (the only exception to this is a quick
claim deed – an instrument of transfer given be a borrower who doesn’t have any other
options; courts are okay that a quick claim deed will not include a right of redemption).
Right of redemption must be free of any conditions that would prevent redemption.
Every mortgage must be redeemable at some point. The right of redemption cannot be
illusory. If such conditions or stipulations exist to clog the equity of redemption, a court will
find such conditions void. The only condition is that the borrower pay the money owed on
the mortgage. However, just because a mortgage has a long redemption period (e.g. 40 yrs)
does not necessarily mean that this postponement period is a clog on redemption; the test
is whether the postponement is “extravagant and oppressive” (Knightsbridge v Byrne).
The equity of redemption is a fundamental to the idea of a mortgage, and is one of the
principles that flows from the equitable maxim: “once a mortgage, always a mortgage”. An
instrument cannot be a mortgage without the ability of the borrower to redeem.
Knightsbridge Estates Trust Ltd v Byrne (1939) – England CA
Borrower obtained a mortgage with a postponement period of 40 years, all of the amount
owing to be payable on default. Borrower argued that they should be entitled to redeem on
full payment (6 years into the term), notwithstanding the 40 year postponement period.
The issue was whether this 40 years postponement period was a clog on the borrower’s
right to redeem at any time upon proper payment of interest and principal. The Court said
that a mortgage with a long redemption period is not necessarily irredeemable,
provided the mortgage was made by persons with equal bargaining power and the
mortgage was commercially viable: “equity does not reform mortgage transactions
because they are unreasonable” (it is not for courts to tell business parties what is
reasonable and what is not). So you can have a long term mortgage, provided the right of
redemption is not illusory. The Court said: equity is concerned with two things, “one that
the essential requirements of a mortgage transaction are observed, and the other that
oppressive and unconscionable terms are not enforced”. The Court held that the test to
be applied is whether or not the postponement was extravagant and oppressive. The
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Court held that 40 years was not extravagant and oppressive –mortgage was commercially
viable, made by parties with equal bargaining power, and the sum involved a very large:
“[t]he resulting agreement was a commercial agreement between two important
corporations experience in such matters, and has none of the features of an oppressive
bargain where the borrower is at the mercy of an unscrupulous lender.” The Court said:
“…equity may give relief against contractual terms in a mortgage transaction if they are
oppressive or unconscionable, and in deciding whether or not a particular transaction falls
within this category the length of time for which the contractual right to redeem is
postpone may well be an important consideration.”
5. COLLATERAL ADVANTAGE
Where a contracting party uses his stronger bargaining position to obtain terms that are
disproportionately advantageous to him, over and above the benefits conferred upon him
by the core of the mortgage contract. E.g. the inclusion of an option to purchase. A lender cannot
take a collateral advantage (asking for something as security that does not directly relate to the
loan) in a mortgage, unless: (a) the collateral advantage is not unfair or unconscionable, (b) the
collateral advantage is not a clog/will not prevent redemption, and (c) the collateral advantage is
not inconsistent with the right of redemption (Kreglinger v New Patagoina Meat). This relates to
the equitable maxim, “once a mortgage, always a mortgage”, and the fact that any conditions in a
mortgage that clog a mortgagor’s right of redemption may be struck down by courts as void.
6. CLOG ON EQUITY/RESTRAINT ON TRADE
Any stipulation or penalty that clogs the equity of redemption, or is repugnant to it, is void.
E.g. a lender having the option to purchase/right to buy will be seen as a clog on the equity of
redemption. But example of thing that will not be considered a clog on the equity of redemption: a
lender having the right of first refusal (the right to match any offer on the able for sale of property
by the borrower).
Implied Covenants
Where a mortgage is made pursuant to the Land Transfer Form Act, Part 3, there are implied covenants,
warranties, etc that are brought into the mortgage by virtue of the Act.
Power of Sale – Foreclosure
In all mortgages, there is an implied covenant that, if the borrowed defaults, the lender can foreclose
and has the power of sale to dispose of the property. The practical result of foreclosure is that the
lender gets clear title (free from the claims or interests of the borrowers and any subsequent charge
holders). However, this right of sale and foreclosure is tempered by the borrower’s right of redemption.
Statutory Protections
Provincial Statutory Protections for Borrowers
Note: provincial legislation is not directly applicable to banks, which are incorporated federally under the
Bank Act. However, banks will do their best to comply w/ provincial statutes (except if major differences).
Credit unions (incorporated under provincial statute) and private lenders must comply with provincial
legislation.
The Mortgage Brokers Act, Part 2 sets out various disclosure requirements to ensure that borrowers,
investors, and lenders receive adequate information about mortgage transactions from mortgage brokers
35
and are fully aware of all the costs involved in the transaction (this is, in a sense, consumer protection
legislation).


Section 17.1, Mortgage Brokers Act: mortgage broker must provide a written information
statement that is “true, plain and not misleading” about any mortgage transaction to borrowers,
investors and lenders. This includes disclosure about all interest, professional fees, appraisal fees,
and any other fees and charges.
Sections 17.3 & 17.4, Mortgage Brokers Act: mortgage broker must provide written disclosure
to borrowers and lenders of “any direct or indirect interest” they might acquire in a transaction.
The Business Practices and Consumer Protection Act, Part 5 applies to any situations where credit is
advanced, including mortgages. The BPCPA protects consumers from unconscionable practices, and is
mainly concerned with preventing the non-disclosure of hidden costs and fees.
Disclosure Requirement (ss. 66(3), 67, 68, 69, 70)





Section 66(3), Business Practices and Consumer Protection Act: requires that creditors give
borrowers a disclosure statement in relation to a mortgage at least 2 business days before either
the borrower incurs any obligation in connection with the mortgage or makes any payment to the
creditor in connection with the mortgage, whichever is earlier. Section 66(4) provides that a
borrower can waive this time period requirement.
Section 67, Business Practices and Consumer Protection Act: provides that the disclosure
statement must be in writing, must prominently displayed the information required under Part 5
of the statute in “a clear and comprehensible manner”. This means that every fee, charge, expense
that is not part of the debt must be disclosed.
Section 68, Business Practices and Consumer Protection Act: requires separate disclosure for
multiple borrowers.
Section 69, Business Practices and Consumer Protection Act: provides that information in a
disclosure statement may be based on assumptions or estimates, if: (1) disclosure depends on
information that is not ascertainable by the creditor at the time of disclosure, and (2) the
estimates or assumptions are reasonable and clearly identified as estimates/assumptions.
Section 70, Business Practices and Consumer Protection Act: if any information in a disclosure
statement is inconsistent with any information or a provision in the credit agreement, the credit
agreement is presumed to incorporate the information or provision that is more favourable to the
borrower (unless it is proven that the less favourable information or provision reflects the
borrower’s actual understanding of the agreement). This means that, if there is an inconsistency
b/w the credit agreement and the disclosure, there is a presumption that the more favourable
provision will trump the less favourable information.
Unconscionable Acts Are Prohibited (ss. 8, 9, 10)

Section 8, Business Practices and Consumer Protection Act: prohibits unconscionable acts by
creditors/lenders against borrowers, and gives courts the power to review whether an
unconscionable act has taken place. Section 8(3) sets out examples of unconscionable acts:
o where a creditor has subjected a borrower to undue pressure (s. 8(3)(a));
o where a creditor takes advantage of a borrower’s physical or mental infirmity,
ignorance, illiteracy, age or inability to understand the character, nature or language
of the transaction (s. 8(3)(b));
o where, at the time the mortgage was entered into, there was “no reasonable probability
of full payment” by the borrower (s. 8(3)(d));
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

o where the terms or conditions in the mortgage agreement “were so harsh or adverse” to
the borrower “as to be inequitable” (s. 8(3)(e)).
Section 9, Business Practices and Consumer Protection Act: s. 9(1) reiterates the prohibition on
committing or engaging in unconscionable acts or practices, and s. 9(2) places the burden of
proof that an unconscionable act or practice was not committed on the lender/creditor.
Section 10, Business Practices and Consumer Protection Act: grants courts the power to deal
with unconscionable mortgage transactions, including the power to revisit a transaction (undo it),
require an accounting (require a lender to provide details of how things were calculated), order
repayment from either side (“make things right” between the borrower and lender, by, say,
requiring a lender to pay back a borrower if the interest rate charged was too high), set aside the
entire mortgage agreement, or suspend the rights and obligations of the parties to the mortgage
agreement.
Federal Statutory Protections for Borrowers
Section 10(1) of the Interest Act provides that, if the term of a mortgage is 5 years or more, after the
fifth anniversary the borrower is free to repay the mortgage without any penalty, provided the borrower
pays three months interest in lieu of notice. The purpose of s. 10(1) is to ensure that
mortgagors/borrowers are not “locked in” to a mortgage for more than 5 years at a time. Section 10(2)
provides that this ability to repay after five years with no penalty except for three months interest does
not apply to corporations (only individuals!) and does not apply to prescribed entities (which includes
partnerships).
Potash v Royal Trust Co (1986) – SCC
Two residential mortgages for properties in Winnipeg: both mortgages had original terms of 5
years, were renewed for 1 year, and then renewed again for an additional 5 years. Royal was the
lender and Potash was the borrower. The borrower made regular payments, but in June 1983
attempted to pay out the mortgages (by tendering the principal amount due plus 3 months
interest). The lender argued that the borrower could not discharge its mortgages “prematurely”.
The Court held that a renewal is not presumed to “reset” the mortgage date. There must be
express language in the renewal to reset the mortgage date. At the 5 year mark, if a
borrower elects not to exercise his right under s. 10 of the Interest Act, and enters into an
otherwise valid and enforceable renewal agreement that “deems” the date of the original
mortgage to be the date of maturity of the existing loan, and the renewal term itself does
not exceed 5 years, then the borrower cannot pay off the mortgage until the end of the 5
year renewal period. Even if a borrower purports to relinquish their statutory right to pay off the
mortgage at the end of any 5 year period, such a provision in a original mortgage or renewal
agreement could not be enforced against him – the borrower cannot contract out of or waive the
statutory protection provided by s. 10 of the Interest Act.
[note: s. 10(1) of the Interest Act does not apply to corporations, and Potash was a corporation, but
the Court ignored this fact]
Summary of the Court’s conclusions from Potash v Royal Trust:
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

“1. The purpose of s. 10(1) of the Interest Act… is to ensure that mortgagors have the right to pay off their
mortgages at the end of each five year period. They cannot be “locked in” for more than five years.”
“2. Where the original term of a mortgage exceeds five years, the mortgagor has the right to pay it off at the
end of five years in compliance with the section: see Deeth.”
“3. 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 it off at the end of five years: see Deeth and Lynch.”
37


“4. Where a mortgagor elects not to exercise his right under s. 10(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 does not itself exceed five years, he cannot pay off
the mortgage until the end of the five-year renewal period: see Kaltenbach, Butcher and Shaw.”
“5. When a mortgagor makes a conscious decision on the basis of full knowledge of his statutory right to
repay at the end of the a 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 mortgagee. He would still be free to pay off the mortgage on
compliance with the statute.”
Possible Scenarios from Potash v Royal Trust
Original mortgage
w/ term of 5 years
or less. (Year 1)
The term is extended by agreement beyond the 5 year mark
(renewal) but the date of the original mortgage stays the
same. (Years 2-4)
A renewal is not presumed to reset the mortgage date (there
must be express language in the renewal agreement for the
mortgage date to be reset), as per Potash v Royal Trust.
At the 5 year mark,
the borrower has a
statutory right to
pay off the
mortgage. (Year 5)
At the expiry of
the term, the
borrower has a
contractual right
to pay off the
mortgage.
(beyond Year 5)
Original mortgage
w/ term that
exceeds 5 years.
At the 5 year mark, the
borrower has a statutory
right to pay off the
mortgage.
The borrower
cannot repay
before the 5 year
mark
At the 5 year
mark, the
borrower has a
statutory and
contractual right
to pay off the
mortgage. (Year
10)
(Year 1)
(Year 5)
If the borrower chooses not
to exercise his statutory, and
enters into a renewal
agreement for another 5
years that deems the date of
the original mortgage to be
the date of maturity of the
existing loan. (Year 5)
Original mortgage w/ term of less than 5 years. (Year 1)
(Years 6-9)
The borrower has a contractual right to pay off the mortgage at
the expiry of the term. (Years 2-4)
Section 6 of the Interest Act requires disclosure of the true interest rate (showing the principal amount
and what the interest rate would be if calculated yearly or half-yearly). If a lender fails to disclosure what
the principal and true interest rate is, the lender may receive no interest at all (a huge penalty. Section 6
applies to mortgages where the interest is payable by one of the following three methods:
a. Sinking fund plan: every time you make a payment, the fund goes down;
b. Blended interest and principal: part of payment goes to interest first, then the rest to principal;
c. Stipulated repayments: schedule of interest that applies to specific payments.
Reason for s. 6 of the Interest Act: consumer protection, because the methods for calculating interest on
most residential mortgages can be deceptive.
Kilgoran Hotels Ltd v Samek (1968) – SCC
The leading case on blended interest and principal payments. The Court defined blended
payments as payments that are mixed such that interest and principal are “inseparable and
indistinguishable”. The Court held that the payments in the mortgage contract in question were
not blended because they could be separated by simple calculation.
Ferland v Sunlife Insurance (1975) – SCC
The Court relaxed the definition of blended payments, finding that “principle and interest are
blended only if the deed does not disclose the true rate or interest payment”. Under Ferland, the
contract in Kilgoran would have been a blended mortgage. Distinguished on facts.
Section 7 of the Interest Act provides that the true interest (as shown in s. 6) is the maximum interest
rate payable. If the true interest rate is less than the rate of interest that would be charged by virtue of any
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other provision, calculation or stipulation in the mortgage, no greater interest rate than the true interest
rate can be charged.
Section 8(1) of the Interest Act provides that lenders cannot charge more (by way of penalty, fine, or an
increased rate of interest) on arrears (Re Weirdale Investments). Section 8(2) provides that it is
permissible for a lender to charge interest on arrears, provided that interest rate does not exceed the rate
payable on principal money not in arrears.
Section 9 of the Interest Act provides that if anything in excess of the true interest rate is charged or if
there is a fine, penalty or higher rate of interest on arrears, the sum paid can be recovered (Re Weirdale
Investments). So any contravention of ss. 6, 7 or 8 of the Interest Act by a lender entitles the borrower to
recovery.
Re Weirdale Investments Ltd v CIBC (1981) – ON High Court
Mortgage provided that 10% interest would be waived, “both before and after maturity, and
before and after default”, if the principal was paid on or before the due date; if the principal was
not paid in time, the borrower would need to pay 10% interest. The borrower argued that this
provision was void because it contravened s. 8(1), which prohibits lenders from imposing excess
interests, penalties, or fines on payments in arrears – the interest payable on default was a penalty,
and void. The lender tried to argue that this provision was not a penalty, but in fact a benefit to the
borrower. The Court concluded that the provision imposing 10% interest on arrears (and
no interest if the principal was paid in time) was a penalty in contravention of s. 8(1) of the
Interest Act, and therefore void. Under s. 9 of the Act, the borrower was entitled to repayment of
the interest.
Raintree Financial Ltd v Bell (1993) – BCSC
Mortgage provided that interest would be 18% per annum until one week prior to maturity, at
which point the interest rate would increase to 24%. The borrower defaulted upon maturity, and
the lender charged 24% interest on the amount in arrears. The borrower sought to have this
provision rendered void as violating s. 8(1) of the Interest Act. The lender argued that, because the
increase in the rate became effective prior to the date of redemption/maturity, it was allowable
under s. 8(2) of the Act. The borrower argued that the words “that has the effect” of increasing the
charge on arrears in s. 8(1) suggests that it was Parliament’s intention not to take a rigid, legalistic
approach. The Court summarized the borrower’s counsel argument as: “Use of the words “that has
the effect of” is deliberate, he says, and is manifestly intended to discourage creative
draftsmanship by mortgagees’ counsel, conjuring up visions of a legion of dusty conveyancers,
lurking behind their massive tomes across the length and breadth of the land, as they await, quills
aquiver, their chance to set at nought what Parliament hath wrought.” The Court agreed with the
borrower: “…this is an attempt by a creative draftsman to get round s. 8(1). But Parliament has
seen the petitions coming, if not the precise route they would follow, and has deliberately inserted
the words “has the effect of”, to head them off at the pass.” The Master’s decision was then
appealed. The BCSC overturned the Master’s decision, finding that the increase a week
before redemption (from 10% to 24%) did not violate s. 8(1) and was consistent with s.
8(2), therefore enforceable: “There is no increase in the interest rate triggered by a default
or arrears. […] In my view, the motivation of the drafter is irrelevant. Either the contract
violates or does not violate s. 8 of the Interest Act.” This is a technical, but acceptable, way for
lenders to get around s. 8(1) > increase due to passage of time, not because of a default. Reasoning
behind increase: if you have not paid a week before the redemption date, there is a higher risk that
you will end up foreclosing > the lender tries to make up for the costs and delay of foreclosing by
dramatically increasing the interest rate right before the redemption date.
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Prenor Trust Co v Hills of Colombia Enterprises (1994) – BCSC
Mortgage provided that interest rate would increase from 12% to 24% one month prior to the
maturity date. The Court upheld the BCSC’s decision in Raintree, finding that this provision
did not violate s. 8(1) of the Interest Act and was therefore valid and enforceable.
TD Trust Co v Guinness (1995) – BCSC
Mortgage provided that interest rate would increase from 16.5% to 24% after the date of maturity.
Considered Raintree and Prenor Trust. The Court refused to follow the BCSC’s decision in
Raintree: “A provision in a mortgage increasing the interest rate one week prior to the maturity
date of the mortgage [as in Raintree] is a device similar to the device of forgiving interest in the
event of timely payment of the mortgage monies [as in Re Weirdale]. Strictly speaking, the increase
in the interest rate is not triggered by a default. However, the effect of the provision is to charge
a higher interest rate on the mortgage monies if they are not paid by the maturity date.”
The Court suggested that an increase in the interest rate would not violate s. 8(1) if it had a
legitimate commercial purpose (e.g. 12% first year, 24% second year for a two year mortgage,
w/ legitimate commercial purpose for this increase being that the lender was only willing to give a
loan for over a year if the interest rate was substantially increased after the first year). The
interest rate increase in the case at bar held to be unenforceable.
Interpretation of s. 8 of the Interest Act has been very inconsistent, and the authorities remain unsettled!
Equitable Trust Company v Richardson (2012) – ABQB
Borrower agreed to two 1 year renewals at higher interest rates (as high as 25%), and also paid
hefty administrative and renewal fees to the bank. Issue of whether the rate increase and fees
violated s. 8(1) of the Interest Act. Master’s decision applied the following test: “The Court should
examine the substance of the transaction, not just its form, to determine if s. 8 has been
contravened. To make this determination, and taking a purposive view of the legislation, the Court,
in my view, must: (a) ignore clever drafting devices and consider whether the effect of the interest
provision is to increase the interest on money in default over that paid on money not in default;
(b) if the provision has the effect of increasing the rate of interest on money in default, consider
the substance of the transaction by examining the terms of the agreements and the circumstances
of the loan objectively; and, (c) permit the interest provision to stand if the parties are
knowledgeable, there is a bona fide business reason for the increase in the interest rate and it does
nota pear to be coercive, unfair, abusive or a penalty.” Appeal of Master’s decision. The Court
overturned the Master’s finding that the rate increases violated s. 8(1), holding that “the
borrower was not an inexperienced party dealing with a lender of great satisfaction”.
However, the Court upheld the Master’s finding that the administrative fees were only
payable on default and thus violated s. 8(1).
Criminal Code ss. 347 and 347.1 deals with situations involving criminal interest, which is defined as an
effective annual interest rate that exceeds 60% of the credit advanced to the borrower. Section 347(1)
creates two separate offences:
1. It is an offence to enter into an agreement to receive interest at a criminal rate. This offence
should be construed narrowly, as per Garland: whether an agreement or arrangement for credit
violates this provision should be determined as of the time the transaction was entered into. If an
agreement or arrangement permits the payment of interest at a criminal rate, but does not require
it, there is no violation of this offence but there may be a violation of the offence to receive
payment/partial payment at a criminal rate.
2. It is an offence to receive payment or partial payment at a criminal rate (more commonly
prosecuted). This offence should be construed broadly, as per Garland: whether an interest
40
payment violates the provision should be determined as of the time when payment is received.
There is no violation of this offence where a payment of interest at a criminal rate arises from a
voluntary act of the debtor/borrower (an act wholly within the debtor/borrower’s control, and not
compelled by the lender or the consequence of a determining event set out in the agreement).
There are four possible consequences to a conventional lender (imposed by a court):
a.
b.
c.
d.
The lender is unable to collect any interest at all;
The lender receives the principal sum but no additional interest;
The lender recovers the principal sum and interest at a court ordered interest rate (typically low);
The lender recovers the principal sum and interest, but only up to 59% (max legal rate), not 60%.
Garland v Consumers Gas (1998) – SCC
One-time late penalty charge of 5% if gas bill not paid in time. Bill remained unpaid for 37 days after
due date = this amounted to a criminal interest rate, exceeding 60% per annum. Under s. 347 of the
Criminal Code, “interest” includes charges or other expenses “in the form of a…penalty”; to constitute a
“charge” under s. 347, the charge must be paid or payable for an advance of credit under an
agreement or arrangement, and “credit advanced” can include the value of any goods, services, or
benefits. The Court held that the “entering into an agreement/arrangement to receive criminal
interest” part of the offence should be construed narrowly (based on time when transaction
entered into), and the “receipt of payment or partial payment of criminal interest” should be
construed broadly (based on time of payment). There is no violation of the “receipt of
payment/partial payment” offence if payment of interest at a criminal rate arises from a
voluntary act of the debtor/borrower (an act wholly within the debtor/borrower’s control, and
not compelled by the lender or the consequence of a determining event set out in the
agreement). The Court held that the customer’s payment within 37 days was not “voluntary” (if the
customer took 38 days or longer to pay, the annual interest rate dropped below 60%): “While strictly
speaking, it is true that customers may delay their payment of the LPP (late payment penalty) beyond
38 days, there is clearly no invitation to do so, and it would be disingenuous to conclude that
customers actually perceive themselves to be at liberty to wait that long.”
Nelson v CTC Mortgage Corporation (1984) – BCCA
Mortgage agreement required that borrowers prepay interest on the mortgage to the lender’s
solicitors. Mortgage was discharged early. One issue was the proper method for calculating interest
(the meaning of “effective annual interest rate” in the Criminal Code): if calculated over the period that
the mortgage was outstanding, criminal interest rate; if calculated over the term of the mortgage, not
a criminal rate. The Court held that the “effective annual interest rate” should be calculated over
the term of the mortgage (not the period that mortgage was outstanding, prior to
prepayment/early discharge). The Court further held that the purpose of this offence was to
“make unlawful” agreements or arrangements that “require the borrower to pay interest at
criminal rate”. In this case, the borrower was not required to pay interest at an unlawful rate > by
paying out the mortgage early, it just so happened that the annual interest rate, calculated over the
term of the mortgage, exceeded 60%. A borrower’s voluntary exercise of their option to prepay a
mortgage cannot make that mortgage illegal under s. 347!
Mortgage Funding Process
Lender will not want to give a borrower/purchaser money until they have secured the mortgage. But the
borrower/purchaser cannot register the mortgage until they are the owner of the property (after giving
the purchase money to the vendor). Likewise, the vendor may have financing on the property they are
selling, which needs to be paid out before they can provide clean title for closing. But the vendor cannot
41
produce clear title until after receiving the purchase money from the purchaser. How to overcome this
problem? Lawyers’ undertakings!
Undertakings/Commitments
Undertakings by Purchaser’s Lawyer to Lender
The lender will give the purchase money to a purchaser on an undertaking from the purchaser’s lawyer
that the purchaser will not use the transfer until:
1. The purchaser has all the cash they need to close the deal, less the mortgage money;
2. The purchaser’s lawyer knows of no reason why the lender under the mortgage would not fund
the remainder of the purchase price once the mortgage is registered.
Once these two conditions have been met, the purchaser’s lawyer must further undertake to:
3. File the transfer (transferring the land from the vendor to the purchase) and register the mortgage
(from the purchaser to the lender).
4. Send the balance of the purchase price to the vendor, after:
a. Title has transferred to the purchaser;
b. The mortgage has been registered at the Land Title Office; and,
c. The purchaser has received the money from the lender.
*In BC, unless the contract already expressly permits the use of undertakings, a party suggesting to use an
undertaking could be interpreted as making a counteroffer (allowing the other party not to accept).
Undertakings by Vendor’s Lawyer to Purchaser
Upon receiving the purchase money from the purchaser, the vendor’s lawyer must undertake to:
1. Pay the vendor’s lender the money that is required to discharge the existing mortgage.
2. Pursue the vendor’s lender to ensure that, once they have been paid, they will provide a discharge.
Enforcement
Mortgages are enforced through a foreclosure process whereby the lender can take the land as part of
its enforcement (more than just a contract). Foreclosure developed as an equitable remedy (to temper
the harsh effect of the common law, which said, if you breach your contract, you lose your land).



If a mortgage is in default, the lender has an immediate right to demand repayment of the entire
mortgage, subject to the borrower’s right to redeem during the redemption period (~6 months).
The lender can begin foreclosure proceedings by filing a petition (Rule 21-7, Supreme Court Rules).
The lender can ask the court for an order nisi, including a declaration that: (a) the mortgage is in
breach; (b) X amount of money is owing; and, (c) the length of the redemption period.
If the entire amount is not repaid by the expiry of the redemption period, the lender has the right
to enforce the mortgage by applying for a court order to take the land, in one of two ways:
o Court ordered sale: the lender can sell the land and use the proceeds to cover the amount
owing; any offers must be approved by the court (to ensure that the offer is fair to all the
parties); the borrower in default may still owe money to the lender if the sale price does
not cover the amount owing (the borrower’s personal covenant is not extinguished).
o Order absolute: a court order that allows the lender to take absolute ownership of the
land (title is transferred to the lender). This amounts to a full settlement of the debt (this
extinguishes the borrower’s personal covenant to repay the mortgage, as per s. 32 of the
Property Law Act; the lender cannot go after borrower for any remainder amount owing).
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Foreclosure is an equitable action that ends the borrower’s right to redeem.
Assignment of Mortgage
Land can be transferred subject to a mortgage (with the mortgage still on title).
Section 20 of the Property Law Act provides that, when a vendor transfers land subject to a mortgage,
the purchaser/new owner is bound by that mortgage (despite the fact that the vendor’s personal
covenant does not bind the new owner b/c they were not a party to the original agreement). Section 20
allows a lender to take direct action against the purchaser/new owner for repayment of the mortgage.
Section 22 of the Property Law Act makes an implied covenant on the part of the purchaser/new
owner that, where land is transferred subject to a mortgage, the purchaser/new owner will make
payments on the mortgage and indemnify the vendor/old owner for payment of the principal.
Section 23 of the Property Law Act provides that the vendor/old owner ceases to be liable on the
personal covenant of the mortgage three months after the mortgage term lends, unless the lender
gives notice to the vendor/old owner to pay. If the lend does not demand payment within 3 months of the
mortgage term ending, the vendor/old owner is no longer bound by their personal covenant to the lender.
Note: s. 23 only applies to residential land. Serves as consumer protection for the vendor/old owner. [this
section emphasizes the dual nature of a mortgage > even after the land is sold/security for loan is gone, the
borrower’s personal covenant to the lender remains until three months after the mortgage expires]
Section 24 of the Property Law Act provides that if a lender approves the purchaser/new owner of
land subject to a mortgage then the vendor/old owner is released from their personal covenant
under the mortgage.
Novation
Novation is a principle that can result in the release of a borrower from their obligations under a loan if a
vendor is not careful. When this can happen: in the renewal or modification of a mortgage, where the
mortgage has been transferred along with the land. The original borrower may be inadvertently released
from the mortgage if the old contract is replaced by a new contract with the new borrower, and the
borrower did not consent to this new contract. Whether or not novation has occurred is a question of
fact (Prospect Mortgage); certain classes or types of documents do not necessarily create novation.
Three (or four?) requirements for novation to occur, as per Prospect Mortgage:
1.
2.
3.
4.
New debtor assumes complete liability under the transferred mortgage;
Lender accepts the new debtor as the principal debtor;
Lender accepts the new contract in full substitution of the old contract;
[May or may not be a factor: original borrower must consent to the new contract].
Effect of novation: the old debtor is released from any obligations under the old contract.
Prospect Mortgage v Van-5 Development Ltd (1985)
Land subject to a mortgage, and this mortgage also included covenantors (did not have an interest
in the land, but had promised to pay the mortgage). Land sold > new buyer negotiated a
modification of the mortgage. Land sold again > second buyer negotiated additional modifications
to them mortgage. The mortgage then went into default, and lender could not recover its full
principle so tried to collect from the original covenanters. The Court held that, because there had
43
been so much change to the mortgage agreement, the agreement was novated so the original
covenants were released from any liability.
Priority of charges
Priority is governed by the date and time of registration (unless parties express a contrary intention),
not the dates of execution of the instruments, as per s. 28 of the Land Title Act. If there are two identical
dates and times, priority will be settled by registration number (the lowest number wins).
Three exceptions to this rule:
1. Contrary intention: the parties to the mortgage can say that it is subject to other instruments.
2. Priority agreement: lenders can enter into an agreement that rearranges priority of charges.
3. Fraud: if registration occurred as a result of fraud, it cannot take priority over a bona fide charge.
Section 20 of the Land Title Act provides that unregistered interests are enforceable between parties, but
unregistered interests do not have priority over registered interests.
Hankin Furniture Industries v Gill (1980) – BCSC
Order of registration of charges: (1) three judgments; (2) a mortgage; (3) eight more
judgments. A judgment is different from a mortgage. A judgment is merely a debt/lien, whereas a
mortgage has a dual nature (contract/personal covenant to pay, and security for debt). When a
judgment is registered ahead of a mortgage, priorities can get complicated. Under the Creditors
Assistance Act, if there are multiple judgments registered against land, each of these judgments
must be paid out rateably (based on the percentage they are owed). But a mortgage is entitled to
be paid entirely. The Court held that the priority of payment should be as follows: (1) all the
judgment creditors should be paid out first, including those registered after the mortgage
was registered; (2) the mortgage lender should be paid out; (3) any balance should go to
the judgment debtor/borrower.
Other registerable charges, which may affect priority






Builders Lien Act: allows for unpaid workers/supplies to register a lien against a property.
Court Order Enforcement Act: allows registration of judgments against property.
Strata Property Act: allows strata corporations to file liens for unpaid strata fees or fines.
Family Law Act: following a triggering event, provides for a lien on land in favour of the spouse
who is not registered as owner on title.
Workers Compensation Act: allows registration of liens for unpaid assessments.
Employment Standards Act: allows registration of liens for unpaid wages.
Doctrine of Consolidation
The doctrine of consolidation is a common law doctrine that provides that that a lender can consolidate
mortgages if a borrower has multiple mortgages from the same lender (this is to ensure full payment).
Section 31 of the Property Law Act does away with the doctrine of consolidation, but parties can contract
out of s. 31. Therefore, mortgage contracts will typically contain a clause stating that, despite s. 31, the
doctrine of consolidation applies to the mortgage.
44
DEFAULTS
“Ready, Willing, and Able to Complete”
In order to close, the parties must be “ready, willing, and able to complete”.
Vendor’s obligation
The vendor must be able to convey title free and clear of all charges and
encumbrances, or as agreed, except those reservations that exist because of the
original Crown grant (s. 9 of the standard form Contract of Purchase and Sale).
The basic charge that must be cleared is the vendor’s mortgage.
Purchaser’s obligation
The purchaser must be able to pay the vendor, as agreed.
Section 15 of the standard form Contract of Purchase and Sale provides that the “buyer will bear all costs
of the conveyance”. This was interpreted in Shaw Industries to mean that the purchaser is responsible
for preparing the conveyancing documents (Form A).
Title Default
Vendor’s Obligations re: Title




Vendor must deliver to the purchaser an instrument (Form A, as per s. 185 of the Land Title Act)
that allows title in the property to be registerable under the Land Title Act; Property Law Act, s. 4.
Vendor must have their own title registered before transferring title to the purchaser (this means
that title must be in the vendor’s name, not in the name of a shell company for example); PLA, s. 6.
Vendor must adequately “describe the parcel of land intended to be transferred” (by providing the
property’s legal description to the purchaser); PLA, s. 7.
Vendor is subject to an implied covenant that they will deliver title to the plaintiff free from all
encumbrances; Land Title Transfer Form Act, Schedule 2 and s. 186 of the Land Title Act.
What Constitutes a Title Default
YES Title Default
NO Title Default
 Encumbrances that have a restrictive effect on the normal use
and enjoyment of the property (Re Hughes, confirmed in Ferria v
Chen), e.g. covenant that restricts building height (Ferria v Chen).
 A financial encumbrance, even if it is an empty mortgage (already
paid out; no obligation behind it) (Campbell v Frolic).
 If title is not in the vendor’s name (as required by s. 6 of the
Property Law Act), but rather in the name of a shell company, for
example (Caplan v Coles).
 Minor encumbrances that have no restrictive
effect on the normal use and enjoyment of the
property (Re Hughes, confirmed in Ferria v Chen),
e.g. sewage easement in favour of municipality (Re
Hughes).
Re Hughes (1969) – BCSC
Contract of Purchase and Sale for property in West Vancouver. Purchaser repudiated and then tried to
argue that the vendor’s failure to disclose a sewer easement in favour of the municipality gave them the
right to terminate (vendor failed to provide free and clear title as agreed). But the Court found that this
sewage easement was “of no restrictive effect to the normal use and enjoyment of the property” and so
was not sufficient to entitle the purchaser to terminate the agreement – the affected area was only a strip
running along the rear of the lot, and the surface of the strip remained for the full use and enjoyment of
the owner (the court even pointed out that the possibility of having sewers, rather than the existing
septic system, could enhance the value of the property). Minor encumbrances, like a municipality’s
45
sewage easement, with no restrictive effect on the normal use and enjoyment of the property do
not qualify as a title default.
Caplan v Coles (1982) – BCSC
Contract of Purchase and Sale formed. In the interim period, the purchaser discovered that title was not
in the vendor’s name – rather, title was in a company’s name. The purchaser decided they did not want
the property after all, but waited until closing. The Court found that the purchaser was ready, willing, and
able, but that the vendor was not ready, willing, and able because title remained in the company’s name.
The purchaser was entitled to rescission and the return of his deposit. Rationale: the Form A and Land
Title Transfer Form Act contain numerous implied covenants (from the vendor), and if the vendor is not
the one with title, these covenants are not coming from the vendor. If the vendor is a person but the
property is registered under a shell company, this is not sufficient = title default.
Risk & Condition of Property
Who Bears the Risk During Interim Period
Section 16 standard form Contract of Purchase and Sale sets out who bears the risk for the property in
the interim period, after execution of the contract and before closing: “All building on the Property and all
other items included in this purchase and sale will be, and remain, at the risk of the Seller until 12:01
am on the Completion Date. After that time, the Property and all included items will be at the risk of the
Buyer.” This means that the vendor will want their insurance in place until 12:01 am on the completion
date, and the purchaser will want their insurance to kick in as of 12:01 am on the completion date. The
vendor bears the risk for the property during the interim period.
Patent & Latent Defects
PATENT DEFECTS
Patent defects are defects that are easily seen on reasonable
inspection; defects “discoverable by inspection and ordinary
vigilance on the part of a purchaser” (Gronau).
e.g. missing roof, no walls
The caveat emptor (“buyer beware”) rule applies, meaning
that the vendor has no obligation to draw the purchaser’s
attention to these defects. “If [the purchaser] omits to
ascertain whether the land is such as he desires to acquire, he
cannot complain afterwards on discovering defects which he
would have been aware if he had taken ordinary steps to
ascertain its physical condition.” (Gronau)
LATENT DEFECTS
Latent defects are defects that cannot be easily seen on
reasonable inspection; 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” (Gronau).
e.g. structural crack concealed with temporary
patching and matching bricks (Gronau)
If the vendor is aware of any latent defects and actively
conceals them, caveat emptor does not apply and the
purchaser can sue for rescission (equitable remedy that allows
parties to go back to pre-contractual position) or damages. “If
latent defects are actively concealed by the vendor, the rule of
caveat emptor does not apply and the purchaser can, at his
option, ask for rescission of contract and/or compensation for
damages...” (Gronau)
Gronau v Schlamp Investments (1971) – MBQB
Contract of Purchase and Sale entered into after purchaser had the opportunity to inspect two of the nine
apartment block units (the purchaser thought these two units looked good > the purchaser and his agent
“were so impressed with what they saw that they did not inspect any other suites because there were of
opinion the balance of the suites would be in the same condition as the… suites they inspected”). After
completion, the purchaser discovered that there was a serious structural crack in one of the apartment
walls. The vendor knew about this crack and had actively tried to conceal it with temporary patching and
matching bricks. The purchaser sought rescission. The vendor argued that caveat emptor should apply
because the purchaser had the opportunity to inspect the building and failed to notice the obvious defect.
The Court said: “…the concealment of the crack amounted to material misrepresentation of the
apartment block… the purchaser received something completely different from what it was
46
represented to be.” Caveat emptor does not apply to latent defects, actively concealed by a vendor.
The purchaser contracted to buy an apartment block in excellent condition but “received instead a ninesuite block with a serious crack extending from the bottom of the basement to the roof” (not at all what
the purchaser contracted for!). The purchaser was granted rescission.
Misrepresentation
In a typical real estate transactions, a vendor will make representations to the purchaser in the Contract
of Purchase and Sale (e.g. about environmental conditions, aboriginal title claims, physical condition).
Fraudulent Misrepresentation
What is it?
Purchaser’s
remedy
Negligent
Misrepresentation
Innocent Misrepresentation
A false representation made
knowingly. In other words: “a false
statement which, when made, the
representor did not honestly believe
to be true” (Roberts v Montex
Development).
Onus is on the party alleging fraud
to prove the fraud (high standard!).
In some cases, failure to disclose will
also amount to fraudulent misrep
(Allen v McCuthcheon).
A false representation
made negligently.
A representation made innocently that turns
out to be false.
e.g. representation that condo was designed to
provide maximum sound-proofing between homes
(Roberts).
e.g. innocent mistake as to the quantity of the land
conveyed (Hyrsky).
Courts will award rescission if
fraudulent misrepresentation
relates to a fundamental term of the
agreement.
Fraudulent misrepresentation is an
exception to the doctrine of merger
(Redican v Nesbitt): this means that
an innocent party may be awarded
rescission, even if fraudulent
misrepresentation is not discovered
until after closing.
Otherwise, courts will award
damages to the purchaser.
Courts will award
rescission if negligent
misrepresentation relates to
a fundamental term of the
agreement.
Otherwise, courts will
award damages to the
purchaser.
Courts will typically only award damages for
innocent misrepresentations. Rescission may also
be awarded, but only if the innocent
misrepresentation is discovered before
completion (doctrine of merger); exception is
where innocent misrepresentation amounts to
error in substantialibus, in which case a court may
award rescission, even if the innocent
misrepresentation was discovered after
completion (Redican v Nesbitt).
e.g. in Roberts, purchaser wanted rescission but
court found sound-proofing misrep did not go to
the root of the K so only damages.
e.g. in Hyrsky, court awarded the purchaser
rescission b/c what they got was totally different
from what they contracted for = error in
substantialibus (a total failure of consideration!).
What constitutes error in substantialibus?
The Court in Hyrsky said: “In order to constitute error in substantialibus, there must be a mutual fundamental mistake as to the quality of
the subject matter.” A mistake that goes to “the very root of the contract”.
An error in substantialibus by the vendor will typically entitle the purchaser to the equitable remedy of rescission.
Error in substantialibus is an exception to the doctrine of merger, allowing an innocent party to claim rescission after completion.
Hyrsky v Smith (1969) – ON High Court
Contract of Purchase and Sale for property, which the purchasers bought for investment purposes. The
deal closed, but it later became apparent that a portion of the property was not actually owned by the
vendor (= an innocent misrepresentation). The issue was whether this error went to the root of the
contract (= error in substantialibus), therefore entitling the purchasers to rescission, or if it did not
(only damages. The Court said: “In the case at bar, the deficiency approximated one-half of the land
purchased and the remnant was unsuitable as a consequence for the purpose for which the purchasers
bought the property. […]… there can be little doubt that the mistake was so fundamental that the
quality and the very identity of the parcel of land which was the subject matter of the sale had
undergone a significant transformation.” The Court suggested that the test for whether a term goes to
47
the root of the K: asking the parties “What was the subject matter of the agreement?”. Purchasers
entitled to rescission.
Allen v McCutcheon (1979) – BCSC
Contract of Purchase and Sale of property in Tsawwassen. The vendor failed to disclose to the purchasers
that the home on the property had no proper foundations, that the BC Hydro right-of-way extended over
25 feet of the property (not 5 feet), that the septic tank and field were defective, that the electric wiring
system was defective, and that the portion of one outside stuccoed wall had no finishing coat on it. The
Court determined that the vendor’s failure to disclose amounted to fraudulent misrepresentation.
The Court granted the purchasers rescission.
Time of the Essence
“Time of the essence” means that there must be strict adherence by the parties to the specified time for
performance. Section 9 of the standard form Contract of Purchase and Sale provides:
TIME: Time will be of the essence hereof, and unless the balance of the cash payment is paid and such formal
agreement to pay the balance as may be necessary is entered into on or before the Completion Date, the Seller
may, at the Seller’s option, terminate this Contract, and, in such event, the amount paid by the Buyer will be
absolutely forfeited to the Seller in accordance with the Real Estate Act, on account of damages, without prejudice
to the Seller’s other remedies
A failure to adhere to the specified time for performance is considered a fundamental breach, and
gives the innocent party the right to terminate the contract. If a purchaser fails to adhere to “time of
the essence”, the vendor may terminate the contract. If the vendor elects to terminate, the purchaser’s
deposit is “absolutely forfeited” to the vendor. If time is of the essence, the minute you miss the deadline
for closing, the contract is dead.
Time of the Essence can be waived
The essentiality of time can be waived (or suspended) in four ways:
1.
2.
3.
4.
By agreement, either express or implied;
Where it would unjust/inequitable to enforce time of the essence, as in Salama Enterprises;
By the innocent party, if the other party is not ready;
If neither of the parties are ready, as in Norfolk and Shaw Industries. If neither of the parties is
ready to complete, either of the parties can set a new, reasonable time for closing and time of the
essence will be restored. But to restore time of the essence, you need to expressly say so in the
amended agreement, per Ambassador Industries! As Southin JA said in Shaw Industries, quoting
King v Urban: “…when both parties let the time go by, and one of the parties wishes to reinstate
time as of the essence, it is necessary to serve a notice upon the other party, fixing a new date for
closing, which must be reasonable, and stating that time is to be of the essence with respect to the
new date.”
Norfolk v Aikens (1989) – BCCA
Contract of Purchase and Sale entered into whereby vendor would provide a portion of the purchaser’s
financing (a vendor takeback mortgage). The vendor’s common law husband filed a notice of pending
litigation on title, so the vendor was unable to complete in time. Purchaser sued for specific performance.
Court found that both parties were not ready, willing, and able to complete. The vendor was not ready,
willing, and able because her mortgage and the notice of pending litigation were still registered on title.
The purchaser was not ready because he didn’t “have the money in his pocket”. The Court found that
time of the essence was waived because both of the parties were not ready. Since both parties were
not ready, the Contract of Purchase and Sale did not die; rather, either of the parties could set a new,
48
reasonable date for closing (then time of the essence would be restored, provided that it was expressly
stated).
Salama Enterprises v Grewal (1988) – BCCA
Contract of Purchase and Sale of property that needed to be subdivided in order for sale to go through
(subdivision was the purchaser’s responsibility). Contract included time of essence clause. The parties
mutually agreed to postpone the closing date. The purchaser requested a second postponement (1 day)
in order for it to complete the subdivision, but the vendor refused and tried to rely on time of the essence.
The Court found that it was inequitable for the vendor to rely on time of the essence b/c vendor, in
allowing the purchaser to access the property for the purpose of a subdivision survey, appeared to share
a common intention with the purchaser to subdivide; further, the parties had already agreed to one
extension so a second one-day extension would not have a significant effect on the vendor. Southin JA in
dissent held that the vendor should have a legal right to rely on time of the essence to avoid
uncertainty > contractually, the closing date was the firm closing date: “Once can argue that these
respondent could have avoided their present difficulties by extending the time. But is every vendor faced
with a defaulting purchaser, in order to avoid the devastating implications of a lawsuit to his bank
balance, to abandon his legal right because the courts may import into a simple piece of paper a concept
which cannot be found in its four corners? There is no previous case known to me in which a vendor
having duly performed his part of the bargain – here the delivery duly executed of all the requisite
documents to the purchaser’s solicitor in good time – and not having waived performance by the
purchaser has been held to have an obligation to extend the time for completion by the other party, or to
put it another way, has been deprived of his contractual right of termination or, to put it yet another way,
has been required by equity to perform despite the essential default of the other party.”
Ambassador Industries Ltd v Kastens (2001) – BCSC
Original contract of Purchase and Sale included time of essence clause. The closing date was postponed
and a revised closing date was set. The amended contract did not expressly say that time was of the
essence. Vendor executed the closing documents, but the courier failed to deliver these documents to the
purchaser on the correct day. Purchasers refused to complete, trying to rely on time of the essence. The
Court found that the words “all other terms and conditions would remain the same” in the
amended agreement was not sufficient to establish time of the essence for the revised closing date.
Therefore, even though the courier delivered the documents a day late, the vendors had fulfilled their
obligations under the amended the contract in a reasonable amount of time. Vendor was allowed to keep
the purchaser’s deposit as damages. If you want to set a new closing date, you must restate that time
is of the essence; it is not sufficient to state that all other terms and conditions remain the same.
Law and Equity Act, s. 31: equity will provide relief to time requirements unless otherwise stated
Under the common law, if you want time to be of the essence, you must expressly say so (Ambassador
Industries). This is especially important because s. 31 of the Law and Equity Act provides that equity will
step in to provide relief to time requirements unless otherwise stated: “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.”
49
COLLAPSING THE TRANSACTION
Tender
TENDER
Tender is the delivery of all money, title, docs, etc on Closing Day as required by the Contract of Purchase and Sale. The action of tendering
is evidence of being “ready, willing, and able” to complete. Proper tender must be in strict compliance with the terms of the
Contract of Purchase and Sale – tender must be in the manner, at the time, and to the party as required by the Contract (Norfolk).
Tender requires perfection. There cannot be any conditions attached to tender. If one party has what they need, but the other party
does not, you cannot complete. A party will fail to tender perfectly, and therefore be in breach of the contract, if they are not “ready, willing,
and able” to complete on the Closing Day.
Two specific things that must be tendered on Closing Day:
1.
The purchaser must tender money, in the form agreed to in the contract (e.g. cash).
2.
The vendor must tender title, free and clear of all encumbrances or as otherwise agreed. Remember the details of the vendor’s
obligations wrt title, set out in the Property Law Act:

Vendor must deliver to the purchaser an instrument (Form A, s. 185 of Land Title Act) that allows title in the property to be
registerable under the Land Title Act; Property Law Act, s. 4.

Vendor must have their own title registered before transferring title to the purchaser (title must be in the vendor’s name, not
in someone else/a company’s name); Property Law Act, s. 6.

Vendor must adequately “describe the parcel of land intended to be transferred” (by providing the property’s legal
description to the purchaser); Property Law Act, s. 7.

Vendor is subject to an implied covenant that they will deliver title to the plaintiff free from all encumbrances; Land Title
Transfer Form Act, Schedule 2 and s. 186 of the Land Title Act.
In order to have full access to remedies (like specific performance!) you must go through will all the steps of tender, regardless of whether
you think the other party will be ready or not. Only an unequivocal statement by the other side that they will not tender releases the
innocent party from its obligation to tender too (Norfolk).
Norfolk v Aikens (1989) – BCCA
Contract of Purchase and Sale entered into whereby vendor would provide a portion of the purchaser’s
financing (a vendor takeback mortgage). The vendor’s common law husband filed a notice of pending
litigation on title, so the vendor was unable to complete in time. Purchaser sued for specific performance.
Court found that both parties were not ready, willing, and able to complete. The vendor was not ready,
willing, and able because her mortgage and the notice of pending litigation were still registered on title –
the vendor did not have clear title. The purchaser was not ready because he didn’t “have the money in his
pocket”. Plus, the Land Title Office computer system was down. The Court found that neither of the
parties were ready, willing, and able to complete – neither of the parties tendered! The Court said:
“The moral of this part of the story is that a solicitor whose client cannot, in fact, perform without
assistance from the other side [in this case, the purchaser needed financing from the vendor], ought to
seek an agreement on the method of completion well before the completion date so that if the other side
insists on its legal right, his own client can do whatever is necessary to perform strictly his own
obligations.” The Court confirmed that proper tender must be in strict compliance w/ the terms of
the Contract of Purchase and Sale (must be in the manner, at the time, and on the party as
required by the K). Only an unequivocal statement by the other party that they will not tender
releases the innocent party from its obligation to tender too – you need to absolutely certain! The
Court said: “Tender is a formal step. […] …if one side has made it clear that it will not complete it is not
necessary for the other to go through the formal step of offering the necessary documents or
consideration.”
50
Repudiation
REPUDIATION
Repudiation is a party’s refusal to perform its obligations under the contract (can be actual or anticipatory).
When a party repudiates, the non-repudiating party has three choices:
1.
2.
3.
The innocent party can accept the repudiation and terminate the agreement. The innocent party is then entitled to claim
damages for the non-fulfillment of the repudiating party’s obligations.
The innocent party can accept the repudiation and terminate the agreement. The innocent party can then ask for the deposit
– either deposit can be forfeited to the vendor, or the purchaser can ask for its deposit to be returned.
The innocent party can reject the repudiation and keep the contract alive. The innocent party can then claim specific
performance and/or damages.
In Shaw Industries, the Court found that, though the purchaser had failed to provide the necessary closing documents to the vendor by the
Closing Date, the vendor was also not ready, willing, and able to complete because it had not cleared title. The vendor was not entitled to
“jump the gun” and “accept” the purchaser’s alleged repudiation because the vendor itself had not tendered perfectly: “a party to a contract
for the sale of land, who is in essential default, cannot be heard to complain of the wrongdoing of the other until he… is himself
ready to do right. To cast stones, ones must be without sin or at least have expiated one’s sin.” Rather, because neither of the parties
were ready to complete, the Contract of Purchase and Sale remained alive, and either of the parties could have set a new, reasonable closing
date.
In Norfolk, Southin JA described repudiation as follows: “If one party repudiates the contract, the other
has a choice: (a) He may accept the repudiation and if he does both parties are relieved from the
obligation of further performance. Thereupon the contract is the measure of the damages of the innocent
party, or (b) he may decline to accept repudiation thereby keeping the contract alive in all respects for
both parties. A repudiation may be a breach of an existing obligation or it may be an anticipatory breach.”
Salama Enterprises v Grewal (1988) – BCCA
Contract of Purchase and Sale of property that needed to be subdivided in order for sale to go through
(subdivision was the purchaser’s responsibility). Contract included time of essence clause. The parties
mutually agreed to postpone the closing date. The purchaser requested a second postponement (1 day)
in order for it to complete the subdivision, but the vendor refused and tried to rely on time of the essence.
The Court found that it was inequitable for the vendor to rely on time of the essence b/c vendor, in
allowing the purchaser to access the property for the purpose of a subdivision survey, appeared to share
a common intention with the purchaser to subdivide; further, the parties had already agreed to one
extension so a second one-day extension would not have a significant effect on the vendor. The Court
said that the purchaser had two choices: (1) to accept the vendor’s repudiation of the contract and
sue for damages, or (2) to seek specific performance of the contract. The Court found that the
purchaser did not accept the vendor’s repudiation, and so was entitled to specific performance. Is there
anything more wrt repudiation that we should get out of Salama?
Shaw v Greenland (1991) – BCCA
Contract of Purchase and Sale for property in New Westminster. Closing Date was set for September 29th
“at the appropriate Land Title Office”. Purchasers left the closing documents at the office of the vendor’s
solicitors after 6:00 pm on September 29th. Vendor’s solicitors did not receive notice of the documents
until the morning of October 2nd. Vendor refused to complete on the basis that the purchasers were not
ready, willing, and able to complete by the Closing Date. The Court found that neither parties were
ready, willing, and able to complete – the vendor had not cleared title, and the purchaser did not
deliver the documents to the vendor in time. As a result of both parties not being ready to
complete, time of the essence was suspended. The Court said: “The simple and peculiar fact of this
case is that neither side did anything it ought to have done by or on the day it ought to have done it.
Neither side even attempted to communicate with the other [to set a time to meet at the LTO on Closing
Day.” The Court held that, because the purchaser “bears the cost of conveyance”, the purchaser is
responsible for preparing the transfer/closing documents (and then “it is for the vendor to be
ready to execute it”). Further, the Court found that, just because the purchaser had missed the
51
Closing Date/had failed to perform, the vendor was not relieved of its own contractual
obligations: “a party to a contract for the sale of land, who is in essential default, cannot be heard to
complain of the wrongdoing of the other until he… is himself ready to do right. To cast stones, ones must
be without sin or at least have expiated one’s sin. […] To put the matter in the vernacular, the vendors
jumped the gun.” The Court granted the purchaser specific performance.
Summary of Remedies
Purchaser’s Remedies
Specific
performance
Vendor’s Remedies
If a vendor repudiates, to claim specific
performance the purchaser must:
Specific
performance
1. Go to the court with clean hands (it must
have tendered perfectly > the purchaser
must have been “ready, willing, and able” to
complete).
2. Be vigilant/act quickly.
3. Keep the contract alive. The purchaser must
not do anything contrary to the contract
being alive (e.g. purchaser must tender
perfectly, and must not demand the return of
its deposit).
1. Go to the court with clean hands (it must have
tendered perfectly > the vendor must have
been “ready, willing, and able” to complete).
2. Be vigilant/act quickly.
3. Keep the contract alive. The vendor must not
do anything contrary to the contract being
alive (e.g. the vendor must tender perfectly,
and must not grab the purchaser’s deposit).
Also, to be granted specific performance, the
property in question be unique, irreplaceable
(Semelhago). If a property is not unique “to the
extent that its substitute would not be readily
available”, specific performance is not justified
but the vendor can still seek damages.
Also, to be granted specific performance, the
property in question be unique, irreplaceable
(Semelhago). If a property is not unique “to the
extent that its substitute would not be readily
available”, specific performance is not justified
but the purchaser can still seek damages.
Return of
deposit
If a vendor repudiates, the purchaser can ask for
the return of their deposit. This action
terminates the contract (the purchaser is
accepting the vendor’s repudiation), relieving
both parties of any outstanding obligations
under the contract. The purchaser may then sue
the vendor for damages.
Purchaser’s
Lien
If a purchaser pays
the vendor the
purchaser price but
does not get title
from the vendor, the
purchaser can claim
a purchaser’s lien
against the vendor’s
interest in the
property.
Rescission
Rescission is an equitable remedy that involves
the undoing of a contract, returning the parties
to their original positions. Rescission is only
available in two circumstances:
1.
2.
Vendor’s Lien
If a purchaser repudiates, to claim specific
performance, the vendor must:
Retaining
deposit
If a purchaser repudiates, the vendor can ask for
forfeiture of the purchaser’s deposit. This action
terminates the contract (the vendor is accepting
the purchaser’s repudiation), relieving both
parties of any outstanding obligations under the
contract. The vendor may then sue the purchaser
for any damages not covered by the deposit.
If a vendor transfers title before the purchaser has paid them the full purchase
price, the vendor can claim a vendor’s lien for the unpaid amount of the
purchase price. A vendor’s lien arises as an equitable right even before a claim
or action has commenced, because the effect of entering into a Contract of
Purchase and Sale is the transfer of the beneficial interest in the property to
the purchaser (Lysaght v Edwards) in exchange for the vendor’s claim over
that interest for the purchase price (Gordon v Hipwell). Today, a vendor’s lien
will take the form of a certificate of pending litigation (a writ of lis pendens)
against the purchaser’s interest in the property (alternative method: filing a
caveat against purchaser’s title, but at the Registrar’s discretion).
Fraudulent misrepresentation; or,
Error in substantialibus (an error that
goes to the root of the contract; what the
party got was substantially different from
what they contracted for < can come up
wrt to negligent and innocent
misrepresentation).
The availability of rescission also depends on
whether it is possible to undo the contract. If the
parties cannot be put back to their original
positions, the innocent party can only claim
damages.
Rescission
Rescission is an equitable remedy that involves
the undoing of a contract, returning the parties to
their original positions. Rescission is only
available in two circumstances:
1.
2.
Fraudulent misrepresentation; or,
Error in substantialibus (an error that goes
to the root of the contract; what the party
got was substantially different from what
they contracted for < can come up wrt to
negligent and innocent misrepresentation).
The availability of rescission also depends on
whether it is possible to undo the contract. If the
parties cannot be put back to their original
positions, the innocent party can only claim
damages.
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Specific Performance
SPECIFIC PERFORMANCE
Specific performance is an equitable remedy that involves the enforcement of a contract. Specific performance requires:
1.
2.
3.
4.
That you go to court with “clean hands” (you must have fulfilled all your own obligations);
That you be vigilant/act quickly;
That the contract still be alive (not terminated). Anything that the party does contrary to the contract being alive (e.g. failing to
tender perfectly/not being “ready, willing, and able”; grabbing a purchaser’s deposit) is an indication that that party should not
have access to the remedy of specific performance; and,
That the property in question be unique, irreplaceable (Semelhago). If a property is not unique “to the extent that its
substitute would not be readily available”, specific performance is not justified but the claimant will be able to seek damages.
SPECIFIC PERFORMANCE AS A VENDOR’S REMEDY
If a vendor wishes to maintain its right to claim specific performance, it should tender, and tender perfectly. In other words, to claim specific
performance, a vendor must be “ready, willing, and able” to complete (have title, free and clear of encumbrances or as agreed).
SPECIFIC PERFORMANCE AS A PURCHASER’S REMEDY
If a purchaser wishes to maintain its right to claim specific performance, it should tender, and tender perfectly. In other words, to claim
specific performance, a purchaser must be “ready, willing, and able” to complete (deliver the conveyancing documents and have the money).
Semelhago v Paramadevan (1996) – SCC
Contract of Purchase and Sale for house in Toronto. The vendor repudiated before closing. The purchaser
sued the vendor for specific performance, or damages in lieu. The value of the property had increased
between the breach and the trial by ~$120,000 – this was a “windfall” for the vendor, because the
purchaser was not able to take advantage of this increase in value. In Semelhago, the SCC changed
parties expectations wrt specific performance in real estate transactions. Sopinka J said: “Courts
have tended… to simply treat all real estate as being unique and to decree specific performance unless
there was some other reason for refusing equitable relief. [But] [s]pecific performance should… not be
granted as a matter of course absent evidence that the property is unique to the extent that its
substitute would not be readily available.” Today, land is more commoditized than in the past, and the
majority of properties are easily replaceable. For specific performance to be justified, the property in
question must be somehow unique, irreplacable. After Semelhago, specific performance became a
more difficult remedy to access > typically awarded for special industrial or commercial projects, and less
so for residential properties.
Damages
If a party is not granted specific performance, they may still be able to claim damages. Damages is a
common law remedy, the purpose of which is to the put the parties in the position that they would
have been in had the contract been fulfilled.
The general rule: damages are calculated from the day of the breach (Mavretic). But this general rule
is upset all the time! The value of real estate can change (rise or fall) significantly between the date of the
breach and the date of the trial. Calculating damages is highly fact-specific.
Mavretic v Bowman (1993) – BCCA
Purchasers did not complete > breach of the Contract of Purchase and Sale. Vendors sued for damages.
The value of the property increased from the date of completion to the date of trial by $29,500. The
Court held that the general rule for damages is that the innocent party “should be placed in the
same position as if the wrongful party had performed the obligation under the contract” (damages
as compensatory). Purchasers argued the vendors should not be entitled to damages because they
suffered no loss (value of the property had in fact increased, so if the vendors sold the property on the
trial date, they would get more money than the purchasers had offered). The Court said: “…the fact that
the value is higher at the trial date than at the completion date does not constitute circumstances that
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should encourage deviation from the normal or usual approach that damages be assessed at the date of
the breach of the contract. The vendors were entitled to their money either to buy another piece of
property or to invest the proceeds as they saw fit. Had the purchaser completed, they could have been in
the position to reap the benefits of the rising market.” The CA upheld the trial judge’s decision to award
the vendors $22,000 in damages (the difference between the contract price and the lessened value of the
property at the completion date, plus special damages). McEachern CJ dissented, suggesting that the
vendors should only be able to recover special damages, damages for the breach, and the interest
they would have earned on the net purchase price from the completion date (and the vendors
must give credit in the amount of the forfeited deposit).
The Deposit: Return to the Purchaser, or Forfeiture to the Vendor
THE DEPOSIT
The return or forfeiture of a deposit has the effect of terminating the Contract of Purchase and Sale (the innocent party is accepting the
repudiating party’s repudiation). Even if there is no express forfeiture clause in a Contract of Purchase and Sale, if the money is identified as
a deposit, the vendor will likely be able to keep it. However, where there is no express forfeiture deposit and the money paid by the
purchaser was not intended as a deposit to guarantee performance of the contract, courts will not imply a forfeiture clause and a purchaser in
default will be entitled to the return of their money (Hirst v Moore).
FORFEITURE OF DEPOSIT/RETAINING THE DEPOSIT AS A VENDOR’S REMEDY
If a purchaser repudiates, the vendor can ask for forfeiture of the purchaser’s deposit. This action terminates the contract (the vendor is
accepting the purchaser’s repudiation), relieving both parties of any outstanding obligations under the contract. The vendor may then sue
the purchaser for any damages not covered by the deposit.
RETURN OF THE DEPOSIT AS A PURCHASER’S REMEDY
If a vendor repudiates, the purchaser can ask for the return of their deposit. This action terminates the contract (the purchaser is accepting
the vendor’s repudiation), relieving both parties of any outstanding obligations under the contract. The purchaser may then sue the vendor
for damages.
Hirst v Moore (1955) – BCSC
Contract for the purchase of land on Vancouver Island with payments made by the purchaser over time.
Purchasers missed one payment. The vendors terminated the agreement, and argued that all of the
payments to date should be forfeited to the vendors as of right. The Contract did not contain a forfeiture
clause. The purchasers brought an action to get the money they had paid back. The Court noted: “In
determining whether any particular sum has been paid by way of deposit as a guarantee for the
performance of the contract, regard must be had to the terms of the contract.” The Court
determined that the money paid by the purchasers was not a deposit to guarantee performance. The
Court refused to imply a forfeiture clause into the contract. The purchasers were entitled to the
return of the money they had paid before they defaulted.
Mavretic v Bowman (1993) – BCCA
Purchasers did not complete > breach of the Contract of Purchase and Sale. Vendors sued for damages.
The value of the property increased from the date of completion to the date of trial by $29,500. This case
also stands for the proportion that courts can relieve from forfeiture: a court will look at what the
actual damages in relation to the amount of the deposit; if the actual damages are less than the
deposit amount, the vendor may not be allowed to keep the full deposit amount (courts will not
allow the vendor to have a windfall). Where in the decision does it say this?
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Liens
VENDOR’S LIEN
If a vendor transfers title before the purchaser has paid them the full purchase price, the vendor can claim a vendor’s lien for the unpaid
amount of the purchase price. A vendor’s lien arises as an equitable right even before a claim or action has commenced, because the effect of
entering into a Contract of Purchase and Sale is the transfer of the beneficial interest in the property to the purchaser (Lysaght v Edwards) in
exchange for the vendor’s claim over that interest for the purchase price (Gordon v Hipwell). Today, a vendor’s lien will take the form of a
certificate of pending litigation (a writ of lis pendens) against the purchaser’s interest in the property (alternative method: filing a caveat
against the purchaser’s title, but this is at the Registrar’s discretion and currently choosing not to exercise discretion). How it plays out:
1.
2.
3.
4.
You transfer title to the purchaser.
The purchaser fails to pay you the full purchase price (at this point, you have lost control of title).
Commence an action against the purchaser for the unpaid purchase price.
Affect the purchaser’s title by filing a writ of lis pendens. Your claim must be resolved before the purchaser can take any further
action on the property.
PURCHASER’S LIEN
If a purchaser pays the vendor the purchaser price but does not get title from the vendor, the purchaser can claim a purchaser’s lien against
the vendor’s interest in the property.
Gordon v Hipwell (1952) – BCCA
Purchaser paid for property using diamond rings. The vendor transferred title to the purchaser. Then the
RCMP seized the diamond rings. Vendor filed a caveat against the purchaser’s interest in the property, in
the form of a vendor’s lien. The Land Title Office, in error, let this caveat expire. While the caveat had
expired, the purchaser sold the land to a third party. The Court found that the vendor’s lien arose as
soon as the Contract of Purchase and Sale was entered into – the contract had the effect of
transferring beneficial title to the purchaser (Lysaght v Edwards) in exchange for the vendor’s
claim over the purchase price. Because the vendor had suffered losses due to a violation of s. 219(2) of
the Land Title Act, and therefore the vendor was entitled to recover from the Assurance Fund.
Rescission
RESCISSION
Rescission is an equitable remedy that involves the undoing of a contract, returning the parties to their original positions. Rescission is only
available in two circumstances:
1.
2.
Fraudulent misrepresentation; or,
Error in substantialibus (an error that goes to the root of the contract; what the party got was substantially different from what
they contracted for < can come up wrt to negligent and innocent misrepresentation).
The availability of rescission also depends on whether it is possible to undo the contract. If the parties cannot be put back to their original
positions, the innocent party can only claim damages.
COMPLETION/CLOSING
Procedure
The 6 Steps to Closing
1. The purchaser’s lawyer prepares the closing documents (Form A, new mortgage) and
forwards these documents to the vendor. Documents include: the transfer + the new mortgage.
[PL Undertaking #1: Purchaser’s lawyer undertakes that, to the best of their knowledge, the purchaser has
fulfilled all of the conditions for funding (new mortgage executed, insurance purchased, etc), except the
registration of the new mortgage, which will happen in Step 3.]
2. The vendor’s lawyer has the transfer documents executed and returned to the purchaser.
Remember: the only person who needs to sign the Form A is the vendor.
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[PL Undertaking #2: Purchaser’s lawyer undertakes not to register the transfer until they hold, in their trust
account, sufficient funds for the transaction > funds held in trust account + new mortgage money, to come
from lender = full purchase price.]
3. The purchaser is now in control of all the documents. On the day of close, the purchaser’s
lawyer registers the transfer (Form A) and, following this, the new mortgage. Upon
registration, the purchaser will receive a pending registration number > do a post-search.
[PL Undertaking #3: Purchaser’s lawyer undertakes to give the purchase money to the vendor after obtaining
a satisfactory post-search, showing that the purchaser will be the owner of the property as contracted for, e.g.
free and clear of all charges that are to be discharged, or as agreed].
[PL Undertaking #4: Purchaser’s lawyer undertakes to return the transfer, unregistered, or to make
application to have the transfer withdrawn (along with the new mortgage), if they cannot uphold
undertakings 1-3.]
4. The purchaser’s lawyer requests and obtains the closing funds from the purchaser’s bank,
and then pays the vendor’s lawyer. [Purchaser’s lawyer has now fulfilled undertaking #3]
[VL Undertaking #1: Vendor’s lawyer undertakes to pay out the existing mortgage upon receipt of the closing
funds from the purchaser’s lawyer.]
5. The vendor’s lawyer, on receipt of the closing funds, will pay out the existing mortgage, and
provides the balance of the funds to the vendor. [Vendor’s lawyer has fulfilled undertaking #1]
6. The vendor’s lawyer will secure the discharge of the existing mortgage, and will register
this discharge (typically a few weeks after the close date).
[VL Undertaking #2: Vendor’s lawyer undertakes to use “diligent and commercially reasonable efforts” to
obtain the discharge of the existing mortgage, i.e. do their best.]
[VL Undertaking #3: Vendor’s lawyer undertakes to provide details of the discharge in due course to the
purchaser.]
Undertakings Generally
In order to close, the vendor must provide clear title and the purchaser provide the purchase money. But
two problems arise wrt timing:
1. The vendor has to discharge the mortgage, but the bank will not provide this discharge until the
mortgage is full paid. The vendor cannot get clear title until mortgage paid out w/ purchase money.
2. The purchaser needs to get the purchase money from its lender, but the bank will not provide this
purchase money until it has secured the mortgage.
Undertakings solve these problems.
An undertaking is a promise given by a lawyer to another person whereby the lawyer assumes a
personal obligation to act or refrain from acting in a certain manner.
What is the effect of an undertaking? The effect of giving an undertaking is personality liability to the
lawyer who has given the undertaking. Chapter 11-7 of the Law Society Handbook provides that a lawyer
is personally liable for breach of an undertaking, unless, under Chapter 11-9, it is abundantly clear that he
or she did not assume personal liability. Note: giving an undertaking on behalf of a client is not sufficiently
clear to relieve a lawyer from personal liability.
What is the effect of breaching an undertaking? A breach of an undertaking is very serious. There are
only three situations that must be reported to the Law Society of BC under Chapter 13-1 of the Law
Society Handbook, and breach of an undertaking is one of these situations. A breach of an undertaking
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can lead to: (a) civil liability to those who relied on the undertaking; (b) professional disbarment; (c)
damage to professional reputation.
Who can give undertakings? Only lawyers can give undertakings. Any letter giving an undertaking must
be signed by the lawyer (you cannot get someone else, e.g. legal assistant, to sign an undertaking letter on
your behalf).
When are undertakings “deemed” to exist? There are a number of situations, set out in Law Society
Handbook Chapters 11-8 and 11-8.1, in which an undertaking is deemed to exist. These situations
include: (a) by issuing a trust cheque, a lawyer is deemed to have undertaken that the cheque will be paid
except in unusual circumstances that the lawyer can justify; (b) if the purchaser’s lawyer accepts the
purchase money in trust and also receives a registerable conveyance from the vendor in favour of the
purchaser, the purchaser’s lawyer is deemed to have undertaken to pay the purchase money to the
vendor on completion of registration.
Who can release or alter undertakings? An undertaking given by one lawyer to another can only be
released or altered by the lawyer to whom the undertaking was given.
What are the principles for giving undertakings?
 Never give an undertaking unless it is wholly within your power to comply with it (Handbook 4-2).
 If an undertaking or trust condition is imposed on you, and you are unable to unwilling to accept it,
you have to get the other side to agree to change it or immediately return anything that was
subject to the undertaking or trust condition (Handbook 11-11). Failure to do so can be seen as
acceptance of the undertakings.
 Imposing undertakings on another lawyer that you would not give yourself is bad practice. You
cannot impose on lawyers undertakings that are manifestly unfair, impractical. (Handbook 11-10)
 Never give an undertaking when a lesser form of assurance will suffice.
 Always bring forward your undertakings.
 Always put undertakings in writing (Handbook 11-7.1).
 Undertakings should be unambiguous in their terms, and clearly drafted (Handbook 11-7.1).
 Never use the term “undertaking” unless in its proper sense.
Purchaser’s Lawyer’s 4 Undertakings
1. The purchaser’s lawyer undertakes that, to the best of their knowledge, the purchaser has fulfilled
all of the conditions for funding (new mortgage executed, insurance purchased, etc), except the
registration of the new mortgage.
2. The purchaser’s lawyer undertakes not to register the transfer until they hold, in their trust
account, sufficient funds that, when added to the new mortgage proceeds, will equal the full
purchase price.
3. The purchaser’s lawyer undertakes that they will disperse (pay out) the closing funds (purchase
funds) to the vendor after they have obtained a satisfactory post-search, showing that the
purchaser will become the owner of the property as contracted, i.e. free and clear of the all the
charges that are to be discharged.
4. Finally, the purchaser’s lawyer undertakes to return the transfer, unused, or to make application
to have the transfer withdrawn (along with the new mortgage), if they cannot uphold the above
undertakings.
Vendor’s Lawyer’s 3 Undertakings
1. The vendor’s lawyer undertakes to pay out the existing mortgage upon receipt of the closing funds
from the purchaser’s lawyer.
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2. The vendor’s lawyer undertakes to use “diligent and commercially reasonable efforts” to obtain
the discharge of the existing mortgage.
3. The vendor’s lawyer undertakes to provide details of the discharge in due course to the purchaser.
Edward Wong Finance v Johnson (1984) – Privy Council
In Hong Kong, similar practice existed involving the use of undertakings to close real estate transactions.
Standard form Contract of Purchase and Sale did not state that undertakings could be used to close.
Undertakings were used. The lawyers who gave the undertakings were sued b/c they had no explicit
authority to use them. In order to use undertakings in a real estate transaction, there must be
express authority to do so. Rationale: the use of undertakings creates certain risks.
Norfolk v Aikens (1989) – BCCA
Adopting the rule from Edward Wong Finance in BC. If there is no direct authorization to use
undertakings in the Contract of Purchase and Sale, lawyers cannot use undertakings to close.
Re Wirick (2000s) – Law Society of BC
Wirick misappropriated trust funds in real estate transactions by failing to pay out and discharge
mortgages, instead applying closing funds to other purposes, in breach of his undertakings. $32.5 million
ended up being paid out of the Law Society Special Compensation Fund. Wirick was disbarred and also
subject to 7 years imprisonment.
In response to Re Wirick, the Law Society adopted Rules 3-88 and 3-89, which require that lawyers report
to the Law Society: (a) any failure of a bank to provide a registerable discharge within 60 days of any real
estate transaction, and, (b) any failure of a lawyer on the other side to register a discharge w/in 60 days.
Purchaser is responsible for preparing the transfer documents
Shaw v Greenland (1991) – BCCA
Contract of Purchase and Sale entered into, but purchaser and vendor did not communicate prior to
closing. The purchaser’s lawyer delivered the closing documents on Friday (closing day) at 6 pm, but the
vendor’s lawyer did not get notice of this delivery until the following Monday morning. The vendor’s
lawyer returned the closing documents, arguing that the purchaser had not been ready, willing, and able
to complete. The Court found that neither of the parties were ready, willing, and able to complete – the
purchase did not have the funds in hand, and the vendor had not cleared title. The Court determined
that the cost of conveyance must be borne by the purchaser, meaning that the purchaser must
prepare the transfer documents (the Form A), and then give these documents to the vendor to
execute.
Section 4 of the Property Law Act provides that the vendor has the obligation to deliver a registerable
instrument (this means that the purchaser will prepare the Form A, but the vendor must execute it and
then return it to the purchaser > the purchaser then goes to register the Form A at the LTO). Section 6 of
the Property Law Act provides that the vendor must ensure that they have title to the property they are
seeking to convey (the vendor must be registered on title for the property).
POST-COMPLETION
The Doctrine of Merger
The doctrine of merger provides that the lesser deeds merge into a greater deed.
Unless there is a contrary intention or a “survival clause” in the Contract of Purchase and Sale, any
representations or warranties made by the vendor in the Contract are “spent” and cannot be relied on by
the purchaser after registration/closing. If the Contract of Purchase of Sale contains a survival clause, all
58
representations and warranties will survive closing. This means that a purchaser can sue based on a rep
or warranty after closing.
Note: our Form A provides that representations and warranties, including the implied covenants
from the Land Title Transfer Act, remain effective after registration/closing.
There are two exceptions to the doctrine of merger, as set out by the SCC in Redican v Nesbitt:
1. Error in substantialibus; and,
2. Fraudulent misrepresentation.
Redican v Nesbitt (1924) – SCC
Contract of Purchase and Sale for property in Toronto. The deal closed, but then the purchaser
discovered that several particulars had been misrepresented to them by the vendor (there were fewer
bedrooms, and no electricity!). The Court could not decide if this was innocent or fraudulent
misrepresentation, so ordered a new trial. The Court held that the Contract of Purchase and Sale was
fully executed following completion. If innocent misrepresentation, rescission was not available to
the purchasers unless the innocent misrepresentation amounted to error in substantialibus. If
fraudulent misrepresentation, rescission was available to the purchasers.
Hyrsky v Smith (1969) – ON High Court
Contract of Purchase and Sale for property, which the purchasers bought for investment purposes. The
deal closed, but it later became apparent that a portion of the property was not actually owned by the
vendor (= an innocent misrepresentation). The issue was whether this error went to the root of the
contract (= error in substantialibus), therefore entitling the purchasers to rescission, or if it did not
(only damages. The Court said: “In the case at bar, the deficiency approximated one-half of the land
purchased and the remnant was unsuitable as a consequence for the purpose for which the purchasers
bought the property. […]… there can be little doubt that the mistake was so fundamental that the
quality and the very identity of the parcel of land which was the subject matter of the sale had
undergone a significant transformation.” The Court suggested that the test for whether a term goes to
the root of the K: asking the parties “What was the subject matter of the agreement?”. Purchasers entitled
to rescission.
Allen v McCutcheon (1979) – BCSC
Contract of Purchase and Sale of property in Tsawwassen. The vendor failed to disclose to the purchasers
that the home on the property had no proper foundations, that the BC Hydro right-of-way extended over
25 feet of the property (not 5 feet), that the septic tank and field were defective, that the electric wiring
system was defective, and that the portion of one outside stuccoed wall had no finishing coat on it. The
Court determined that the vendor’s failure to disclose amounted to fraudulent misrepresentation.
The Court granted the purchasers rescission.
Collateral Obligations
Roberts v Montex Developments (1979) – BCSC
Vendor’s sale brochure and agent represented that the apartment building had “been designed to provide
maximum sound-proofing between the homes”. Purchaser bought a suite, but then complained of “almost
intolerable” noise being transmitted from adjoining suites. Purchaser brought a claim against vendor for
damages for fraudulent or negligent misrepresentation or breach of a collateral agreement. The Court
determined that the representation was a collateral warranty. The Court then considered whether
this warranty was “swallowed up” by the written contract according to the doctrine of merger: “where
parties enter into an executory agreement which is to be carried out by a deed afterwards to be
executed, the real completed contract is to be found in the deed. The contract is merged in the
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deed.” The Court concluded that the vendor was bound by the collateral warranty and the purchaser was
therefore entitled to damages.
Implied Covenants
Warranty of Fitness (Habitability)
The common law implies a warranty that the work on a newly built or renovated home has been done in
a good and “workman-like manner” (defined as the standard of the profession). This implied warranty of
fitness includes: a covenant that the builder has used good and proper materials; a covenant that the
property is reasonably fit for human habitation).
Title Covenants
The Form A transfer implies a number of covenants, including that the vendor will deliver title to the
plaintiff free from all encumbrances, that the transfer of the property will include all the buildings and
benefits attached to the land, and that the purchaser will have “quiet possession”; Land Title Transfer
Form Act, Schedule 2 and s. 186 of the Land Title Act.
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