Table of Contents

Introduction 2

Marketing the Property 7

Contract of Purchase and Sale 15

Financing 33

Title Defaults 44

Collapsing Transaction 50

Completion / Closing 54

Post Completion 58

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INTRODUCTION

TRANSACTION
Agents
Agent/Broker/Licensee: markets and sells the property and fills a role as a business advisor assembling information to
present to potential purchasers.
 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.
 Agents are a necessary element in commercial transactions. They act as business advisors and they market the
property.
 Both parties may rely on their own broker or share the same one.
 Broker gets paid through the commission on the sale of the property, arising out of an agreement with the party that
the agent has contracted with.
 Listing agreement: when vendor lists the property with an agent.
 Agency agreement: when the purchaser has an agreement with an agent.

Vendor and Purchaser

Vendor = seller
 Wants money – wants to get paid on time and wants their best price.
 Doesn’t want to get sued / liabilities.
 Wants to make the least amount of reps / warranties as possible.

Purchaser = buyer
 Want to make sure that whatever they’re buying is what they’re contracting for.
 Want to pay a fair price.
 Want to make sure the seller gives enough reps / warranties and client has enough environmental investigations and
there is enough environmental indemnities from the seller.

Lawyers
Prepare necessary documents to transfer property through undertakings and securitization, but also provide legal advice on
educating the client on what in fact they are buying and the risks associated with each step of the transaction.
 It’s very rare that any client comes to a lawyer when they are entering into a listing agreement, which is puzzling
because if things aren’t right in this agreement, it could potentially cost them a lot of money.
 In addition, in residential transactions, it is equally rare for the parties to come to a lawyer before they sign a contract.
It would be better if it were prior to the contract being signed.
How can a lawyer receive commission from a listing agreement?
 Real Estate Services Act: in order to enforce a commission, you have to be a licensed agent under this Act, unless you
are a lawyer working in the course of their practice.
As the lawyer in the transaction, you are a fiduciary. You must advise your client that, while an agent should have
their interest in mind, they may not (because of the economic reality).

PROCESS OF A TRANSACTION
1. Contract of Purchase and Sale (residential)
Once property is listed, marketed, and a purchaser is found, there is a standard form contract for the real estate purchases
and sales called the contract for purchase and sale (CPS).
 Quick, effective CPS. Not effective for strange conditions or inclusions that are atypical.
 Generally, the broker will prepare this.
 Common mistake: the legal description of the property.
Deposit: using this term carries consequences; the law implies that:
 If you are the purchaser and make a deposit and the purchaser doesn’t close, the vendor can keep the deposit.
 If a vendor gets a deposit from the purchaser, and it is the vendor’s fault that the deal doesn’t close, the vendor returns
it.

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2. LSBC Residential Conveyance Checklist
Very useful checklist which provides a good overview of how a transaction will flow, and the types of issues that need to
be dealt with. Includes reminders such as: title search, client consultation, follow ups, etc.
LAND SYSTEMS WE WORK IN

1. LAND TITLE ACT – Torrens System (ss. 20, 23 are key)

Private land that individuals or companies own. Land that has been bought under the LTA system is governed by the LTA.
This land is registered in the LTO.

Effect of Registration s.20: under the Torrens system, transfers or deeds are generally not effective until registered.
This is the “heart” of the LTA, and the essence of indefeasibility.
 s.20(1) unregistered instrument does not pass estate: except as against the person making it, an instrument
purporting to transfer, charge, deal with or affect land or an estate or interest in land does not operate to pass an estate
or interest, either at law or in equity, in the land unless the instrument is registered in compliance with this Act.
o “except as against the person making it”: Means that an unregistered transfer is still operative between the
transferor and transferee. The transferee can still enforce the transfer against the transferor regardless of
registration. In other words, a person’s interest (FS, mortgage, lease, easement) does not have to be registered
to be valid against the grantor. However, note that this does not affect a 3P who is not a party to the
transaction, and acquires their interest bona fide.
 s.20(3) Lease exception: Anyone who has a lease for a term of 3 years or less in actual occupation holds a valid lease
against the world, and does not need to register their interest for it to take effect.
 s.28 priority of charges based on priority of registration: first in time is first in right.
 s.33 an equitable mortgage cannot be registered: the LTA does not recognize a split in legal and equitable
ownership, and assumes that there is a single owner who holds both. But second (equitable) mortgages are registrable
as charges.

Indefeasibility s.23: registered title is indefeasible because it is “conclusive evidence at law and in equity” that title is
yours. The “lungs” of the LTA.
 s.23(2): however, your indefeasibility is subject to certain exceptions:
o 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. s.23(2)(a) of Land Title Act provides that a registered owner holds
indefeasible title subject to these exceptions to the Crown grant.
o 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))
 Basically, if you don’t pay your taxes for 2 years, you may lose your fee simple
 City can take title via tax sale
o Some leases: a lease or agreement for a lease for a term not exceeding 3 years if there is actual occupation
under the lease agreement. (s.23(2)(d))
o Highways and public rights of way: (s.23(2)(e))
o 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)) – only the province has the inherit right to expropriate
o 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. s.23(2)(c)
o 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))
o Fraud: if you obtained title by fraud, you do not hold indefeasible title. (s.23(2)(i))

Registered charges are not indefeasible: In BC, indefeasibility does not extend to charges. Registration of a charge
raises only a rebuttable presumption that the charge is valid. In other words, a charge can still be removed from title if
there is evidence of invalidity.
 26(1) Deemed to be entitled: Registered owner of charged deemed to be entitled to the estate, interest, claim created

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 or evidenced by instrument in respect of which charge is registered.
 26(2) Registration not determination: Registration of charge doesn’t constitute determination by registrar that
instrument creates or evidences estate or interest in land, or that charge is enforceable.
 27(1) Registration of charge is notice: Registration of charge gives notice to every person dealing with title to land
of (a) estate/interest in respect of which charge has been registered, and (b) contents of the instrument creating charge.

Abolition of Notice s.29: A purchaser dealing with the registered owner under the Torrens system generally only needs to
be concerned with what is shown on the certificate of title, thus abolishing the doctrine of notice.
• Effect of notice of unregistered interest 29(2): Except in case of fraud in which person has participated, person
contracting/dealing with/taking/proposing to take from registered owner (a) transfer (b) charge/
transfer/assignment/subcharge  Isn’t affected by notice, express, implied, or constructive of unregistered interest
affecting land or charge
• Except: (c) interest with pending registration, (d) lease for 3 years or less with actual occupation
Note: Fraud is hard to prove (high standard).

Assurance Principle: This recognizes that the principle of indefeasibility may cause some individual to lose rights to land
that they would have otherwise held at CL. The assurance fund was established to compensate such individuals

2. Strata Property Act

 The way condominium is set up (vertical stacking of land interests) depends on statute (Strata Property Act).
 Act works with LTA to allow for the creation of strata units.
 Different types: 1) bare land strata, 2) stratified airspace parcels.

3. Provincial Crown Land Act

 Almost the entirety of Crown land in BC is provincial. These lands are administered under the Land Act.

4. Reserves (Federal Crown) and Aboriginal Claimed Grounds

Federal jurisdiction: port authority, reserves, airports.
Reserves under the Indian Act are lands owned and set aside by the Federal Crown for the use and benefit or FNs and are
not subject to the Land Title Act. These lands are never granted in an FSI fashion, but allow certain possession rights to
areas of reserves through:
1. Certificates of possession.
a. Only issuable to band members and can’t be transferred.
2. Leases.
a. Crown may grant lease of the parcel, allowing band members to deal with the land, and allow outside parties
to obtain some interests in these lands.

Today, two types of FN lands.

Reserve: Federal crown lands, governed by the Indian Act. The federal government owns reserves, and is supposed to deal
with and maintain the title to reserves. Reserves are generally not reserved in LTS. The only way for land in federal Indian
reserves to be transferred is under the Indian Act, through leases to first nation individuals (head lease made to a FN band
member, can subsequently sublease to anyone else).
Treaty:
 Nisga’a.
o First one. Groundbreaking and it has flaws.
o Granted a very large area of the northern province to allow them to govern and it gives them a bunch of
rights to ensure use of the land in the way that they want to.
o Did not go as far as giving clear title in the way that we think of title.
 Tsawwassen.
o T lands are registered in LTS as being owned by the T band.
o Can do anything they want, except for sell it.
 This is to prevent bamboozling away to developers.

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Tsilhqot’in Nation
Evolution of litigation that started with Sparrow in the 1990’s stating certain usage rights were maintained and why they
could be limited. Delgamuuk’w confirmed title is a communal right but can be limited for a compelling and substantial
objective and with consultation. In Tsilhqot’in, if there is a clear title claim, the band holds the exclusive right to decide
how the land is used subject only to the restriction that the use must be consistent with the nature of the interest and
enjoyment of the land by future generations. Prior to establishment of title, Crown must consult with FN before alienating
lands (sell, transfer, lease, license). After establishing title, any incursion to title must have a compelling and substantive
objective and be consistent with the Crown’s fiduciary duty to the FN and idea of use by future generations. Consultation
must be effective, or the Crown’s disposition of lands can be undone

Application to an Exam Fact Pattern:

 The crown has a duty to consult before giving away land that may be affected by a land claim.
 Would you get representations, a condition that would allow you to investigate, a condition that allows the vendor to
solve the title issue?
o How would those steps work in a contract by either making the contract more difficult to enforce or put
obligations on the parties? How would you use those tools to protect from a land claim issue but still keep
the contract enforceable?
 You can use representations from the seller, which if they are wrong, could give rise to damages or rescission
depending on how the reps are interpreted.
 You could insert a condition for the purchaser to be satisfied with the vendor’s steps to consult have been effective.
 You could have a condition for the vendor that it has completed consultation.
 What are the consequences of such conditions – do they make the contract less enforceable?

TITLE SEARCH

Three fundamental elements of any real estate contract (3 P’s)

1. Property:
a. PID (parcel identification number).
b. The legal description of the property (the description the LTO uses).
2. Price:
a. Certainty of price required, or at least a formula to determine the price.
3. Parties:
a. Accurate description of the buyer and seller / purchaser and vendor.

First step to ANY transaction is running a title search

 Describes property in BC with two things:
o PID – Parcel Identifier Number: 9-digit number unique to every property in BC
o Legal description – describes how particular parcel was created (the most certain description)
o Combination of PID and legal description is completely unique to each property in BC and most complete
way of describing land (way better than municipal address)
 Registered Owner
o Will say in what way two parties own joint ownership – joint tenants (if one disappears, the interest of that
person automatically transfers to the remaining joint tenants) or tenants in common (if one party dies, their
interest has to be transferred through probate or through their will)
 Legal Notations
o Things that may affect the land but are not encumbrances of the land – telling you to check this
 Charges, Liens and Interests
o Real encumbrances of the property – actually affect the property
o Mortgages, easements, leases, covenants, etc.
o Priority agreement – s.28 of the LTA says that charges take priority based on date and time of registration,

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 unless there’s a different intention
 Duplicate Indefeasible Title
o Method in Land Title System to take out the duplicate – if the duplicate is taken out you can’t do anything
with the land (transfer, mortgage, etc.)
 Pending Applications
o When an encumbrance or anything is to be registered on title, you send it to the LTO and it immediately
shows up in this section until it is reviewed and passed by title examiner at LTO
o Pending registration retains its priority of registration
 Also searches you can get of Indian reserve lands – three months slower than LTO because it’s operated by the federal
government

TYPES OF TITLE
Note: the LTA does not discriminate between legal and equitable title.

Legal Title
The person who is registered on title is known as the legal owner. Owns the right to transfer, convey, encumber,
mortgage, deal, with the legal interest in the property.
 The REGISTERED OWNERS are the LEGAL OWNERS, but they might have entered into an agreement with a third
party so that the third party is the BENEFICIAL OR EQUITABLE OWNER. As long as that agreement exists, it is
enforceable between the two parties, making the agreement (wording of s.20) AS LONG AS the registered
owner you made the agreement with REMAINS the registered owner on title. The RISK is if the registered owner
transfers the property without the third party equitable owner’s knowledge. Then s.20 creates no relationship
between the equitable owner and the subsequent purchaser.
Issue with this – when you sell as a legal owner all you can sell is the legal interest, not the beneficial interest.
 There is no value in someone just transferring a legal interest
 It’s important to think about who the beneficial owners are, who the legal owners are, etc.

Beneficial Title
Beneficial title is the right to the benefits of the lands – all the rents, profits etc. and the obligation to the burdens (taxes
etc).
 The BC land title system does not recognize a difference between legal and beneficial title and assumes it is all
one. It is possible in the common law to split legal title to one owner and beneficial title to another owner. The legal
owner holds the legal interest (registered title) in trust for the beneficial owner. There must be some type of agreement
to record the terms on which the legal owner holds the lands. This agreement is generally not registered in the land
title office but can be to show a trust relationship.
 The nominee agreement (‘off title agreement’) is a sample bare trust agreement. Registered owner holds for
beneficial owner and does with the land whatever the beneficial owner tells the legal owner to do.
o Not registered – s.20 of the LTA says that this may still be enforceable between the parties
o This relationship is used to avoid property transfer tax because you can transfer the ownership of a company
that is the legal owner by transferring the shareholding and not have to register any transfer in the land title
office.

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MARKETING THE PROPERTY

REGULATORY FRAMEWORK

LISTING AGREEMENTS

Listing agreements have primary functions:

1. Sets out authority of the agent to represent the owner in the transaction.
2. Sets out commission (how much broker is paid).
3. Sets out terms (triggers under which the broker will be paid).
4. Must be in writing.
5. The name of the client and the licensee name of the brokerage.
6. A description of the property (PID, legal description).
7. The term (how long the listing agreement will last).
8. A general description of the services to be provided (rights, powers, responsibilities of the agent).

Types of Listing Agreements

Exclusive Listing Agreement

Arises between a vendor and a broker in which that particular broker is the only agent that will represent the vendor.
 No one else has the authority to represent the vendor for the particular sale.
 UNLESS the broker is authorized to delegate some authority to another party in terms of that sale (most exclusive
listing agreements will have a clause like this).
 Privity between vendor and listing agent is clear. The relationship is governed clearly.

Multiple Listing Agreement (most common)

Allows the vendor’s broker to share commissions with other brokers.
 When there are multiple brokers working on a single sale, it blurs the relation between the sub-agent and the vendor
(privity issue). The multiple service agreement is designed to mitigate this issue.
 Residential sales generally use the multiple listing service.
o Gives agent authority to list the property on a service that aggregates all agents in the MLS system.
o Everyone that is a part of the MLS is a sub-agent for everyone else’s listings, can provide offers and is then
entitled to a part of the commission.
o The one who is the effective cause of the sale gets the commission.

Open / General Listing Agreement (uncommon)

Vendor can hire as many agents as they desire to sell the property, but only the agent who is the cause of the sale receives
commission. An open agreement is entered into by each agent with the vendor.

Exclusive Right to Sell

No matter who sells / buys the property during the term of that agreement, the agent gets the commission.

Requirements for a Written Listing Agreement

 5-1(1) RECR: written, unless requirement waived by prospective client, agent must have written service agreement.
 5-1(2) RECR: before services, for trading services, service agreements must be entered into before brokerage
represents the client in offering real estate for sale or other disposition.
 5-1(3) RECR: signed, service agreement must be 1) signed by client, 2) signed by authorized signatory of brokerage,
3) clearly state all agreements terms and conditions.
 5-1(4) RECR: necessary elements of listing agreements
o Name of client and licensee name of brokerage.
o Description of property.
o Term (duration LA will last).
o General description of services to be provided.

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 o Commission / remuneration (trigger events).
 On the completion of sale.
 Even if a purchaser is brought to the vendor who is willing to purchase by the vendor refuses to
enter a contract.
 Even after the term of the listing agreement has expired, if a party that the listing agent has
introduced to the party ends up buying the property, they may still owe commission.

Dual Agency
“Limited Duel Agency”: an arrangement where the agent can represent both the seller and the buyer at the same time.
1. Consent: this can only occur with the consent of both parties (sign Dual Agency form).
2. No breach of duty: parties permit the agent to modify relationship with each client.
3. Altered disclosure: under Limited Dual Agency Agreement, disclosure modified to allow licensee to keep
information confidential from other 3 areas:
a. Price client willing to accept/pay.
b. Motivation of either client.
c. Either client’s personal information.
5-10 RECR: agent must disclose whether they expect to provide real estate services to any other party in relation to the
same transaction. But if both parties agree in writing, the same agent can act for both parties. Dual agents must be
impartial to both vendor and purchaser, and fully disclose all information related to the transaction.

LICENSING REQUIREMENTS OF AGENTS (RESA)

RESA is a piece of consumer protection legislation. It governs the licensing and conduct of agents, and establishes the
real estate council which has the authority to administer the act, and thus govern the actions of agents (s.86).

s.2 Application of the Act: RESA will apply to every person who provides real estate services.
 The EXCEPTION is someone who is NOT licensed AND who is doing it for free, then the Act will not apply
(consumer protection!).
(1) This Act applies to every person who provides real estate services to or on behalf of another for or in expectation of
remuneration.
(2) In addition, but subject to the rules, this Act applies to every licensee who provides real estate services, even if the
licensee:
(a) provides real estate services on the licensee's own behalf,
(b) provides real estate services to or on behalf of another but not for or in expectation of remuneration, or
(c) would otherwise be exempted by this Act or the regulations from the requirement to be licensed in relation to
the provision of those real estate services.

Licensing Requirements

s.3 requirements of the licensee in order to provide real estate services:

(1) 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 under this Part to provide those real estate services, or
(b) exempted by subsection (3) or the regulations from the requirement to be licensed under this Part in relation to
the provision of those real estate services.
(3)(f) exception for lawyers in respect of RE provided in the “course of the persons practice”

s.1 definition of “real estate services”:

a) rental property management services, (being a leasing agent – someone who collects rent/manages the property)
b) strata management services, or (acting on behalf of a strata corporation)
c) trading services; (our focus – i.e. those acting as agents for the sale/purchase of property who provide market
analysis, other data, finding real estate for someone to acquire)
Remuneration is broadly defined – any sort of compensation (commission, fee, gain, reward, whether received directly or

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indirectly.

s.1 definition of “trading services”:

• Advising on appropriate price for RE;
• Making representations about the RE;
• Finding the RE for a party to acquire;
• Finding a party to acquire the RE;
• Showing the RE;
• Negotiating the price of the RE or the terms of the trade in RE;
• Presenting offers to dispose of or acquire the RE; and,
• Receiving deposit money paid in respect of the RE.

s.1 definition of “real property”:

(a) land
(b) regardless whether it is interest in real property (less than fee simple – e.g. might be a time share)
(c) right and interest to real property that is defined by regulations

s.4(1) if you aren’t licensed, you cannot bring an action to recover remuneration (i.e. you have to be in compliance with
RESA to sue).

Levels of Licenses
s.5(1) levels of licenses / categories.
(a) brokerage: being a licensee on behalf of which other licensees must provide real estate services;
(b) managing broker: being a licensee responsible for a brokerage as provided in s. 6
o s.6 a brokerage has to have a managing broker who will be responsible for the control of those working
underneath them
(c) associate broker: being a licensee who meets educational and experience requirements to be a managing
broker, but is providing real estate services under the supervision of a managing broker;
(d) representative: being a licensee providing real estate services under the supervision of a managing broker
(lowest level)

s.7 relationships between brokerage and other licensees: you have to be licensed to a single brokerage  you can’t
work for multiple brokerages, only one (otherwise, would raise conflict issues)

AGENTS AND DEPOSITS

Purposes of deposits:
1. Partial payment of purchase price.
2. Good faith, proof of sincerity / guarantee of performance by purchaser.
3. Damages of immediate access.
4. Source of commission for the agent.

Agents have statutory duty to hold deposit in trust

 Purchaser pays deposit to vendor’s agent, who holds it in trust until transaction completes.
 s.28(2): if a brokerage holds a deposit in trust, the deposit has to be held unless or until a) the parties agree in
writing, or b) the circumstances established by the regulations apply.
 s.31: payment of licensee remuneration – licensee can’t be paid from the deposit account unless it has been
earned as determined in accordance with the rules.

There are 3 circumstances an agent can touch deposit money

1. Transaction completes:
a. If transaction completes, deposit can get released to the vendor. Agent is entitled to their commission.
b. s.31(1) RESA: permits agent to deduct commission from deposit money held in trust.
c. 5-15 RECR: licensee’s remuneration can be paid out of a trust account on the date when documents
effecting transfer are submitted to LTO for registration.

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2. Transaction collapses:
a. If the transaction falls apart for a legitimate reason and the parties consent to return deposit to purchaser or
forfeit deposit to vendor.
3. Adverse claimants:
a. If there are a) adverse claimants to deposit money, b) identity of one or more persons entitled to it unknown,
c) there is no person capable of giving or authorized to give valid discharge for it:
b. s.33(1) RESA provides that the agent can pay deposit money into BCSC to let court decide.
PRINCIPAL – AGENT RELATIONSHIP
An agent is someone authorized by the principal to do something on the principal’s behalf. The legal consequences of an
agency relationship are that the acts of the agent are binding on the principal.

Two types of authority

 Actual / Express: given through a contract (e.g. listing agreement).
 Implied actual: authority that is implicitly given. If, by all appearances to the world you hold someone out to be an
agent, then the law will treat that as an agency relationship (e.g. you give a business card that says they are your VP,
they are implicitly an agent).

Duties of Agents

Statutory: outlined in Real Estate Council Rules

 5-3.1 Presentation of offers:
o If you are a licensee and you have received a signed offer, you have to promptly communicate that to your
principal / the related brokerage of the licensee
 5-4 Acceptance of an offer:
o A licensee who has received a signed acceptance to acquire or dispose of RE must promptly deliver to (a)
parties (b) to related brokerage
 5-5 Inducing breach of contract prohibited:
o A licensee must not induce any party to an agreement for a trade in real estate to break the agreement for the
purpose of entering into an agreement with another party.
 5-6 Representations as to sale, resale, purchase, etc.:
o Licensees can’t make inducement recommendations (representation or promise made by a licensee to a
party saying that the licensee or someone else will do things like procure a lease/acquire or resell the real
estate/purchase or sell rights under financing)) UNLESS IT IS IN WRITING.
o Can’t make big promises that will induces someone to buy/lease/finance unless it is in writing.
 5-9: Disclosure of interest in Trade Agent:
o Must disclose promptly when they or associate on behalf is directly/indirectly acquiring or disposing of RE.
Before any agreement entered into, and in prescribed form (Re Crackle).
 5-10: Disclosure of Representation and Relationship in Trading Service Agent
o Must disclose promptly the representation they will provide for party, and whether the AG or related licensee
will be providing trading services to other person in same transaction, whether receiving remuneration from
that person, and nature of relationship to that person.
 5-11: Disclosure of Remuneration:
o AG must disclose any remuneration other than from client, but received as result of providing services to
client, or recommending the client. Disclosure must be made promptly to both client and brokerage source,
amount, other info
 5-13: Disclosure of Latent Defects:
o If vendor urges AG to hide material latent defect, AG has statutory duty to withdraw as vendor’s AG

Contractual (can be express or implied)

 The duties that are owed by an agent to whom they have a privity of contract (i.e. their principal). These can be
express or implied duties. The standard listing agreement doesn’t say a lot about the duties and obligations of the
agent, but there is a lot of case law, and thus a lot of implied duties.
 Two key implied duties:
o Skill: implied duty that agents will exercise their duty with a reasonable amount of skill. They will be held to

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 the requirements of the average agent (obey principal’s instructions, have to acquire enough information as a
reasonable agent would, use reasonable care and diligence in drafting agreements and presenting advice,
comply with RESA).
o Diligence: there is a duty of reasonable diligence. How far does an agent have to go to sell your property?

Tort
 The law of negligence applies to agents. Agents owe a duty of care and they have to act as reasonable and prudent
agents.
o Reasonably foreseeable that if agent acts negligently, principal will suffer.
o If conduct falls below standard, negligence issues arise.
 Standard of care: “that of a reasonable and prudent agent”.
 Price v Malais: failure to investigate title before making title was a breach.
 Moharih: drafting a bad and ambiguous offer where there wasn’t meant to be was a breach.
 These duties are construed strictly against the agent (Re Crackle).
Key issue: to whom does the agent owe this duty of care? Clearly they owe one to their principal, but the question is
whether they owe it to anyone else.
 Owes a duty of care not to negligently misrepresent information (Bango v Holt). If an agent is found to have
negligently or fraudulently misrepresented information, their principal will also be liable (Smith v Yeasting).

Fiduciary
Agents owe fiduciary duties as acknowledged by the SCC (was said to be a per se fiduciary in Elder Advocates of AB).
The case law says fiduciary relationships can also arise on an ad hoc basis  ones that arise out of the specific
circumstance because of the specific relationship (this is also applied in the agency matrix).
 Frame v Smith – 3 elements that give rise to an ad hoc fiduciary duty (International Corona for first 3):
(1) Fiduciary has some scope for the exercise of some discretion or power  Fiduciary is in a power position
(ability to act)
(2) The fiduciary can unilaterally exercise that power or discretion to affect the beneficiary’s legal or practical
interest  The fiduciary can hurt the beneficiary unilaterally by what they do
(3) The beneficiary is in a vulnerable position (at the mercy of fiduciary holding discretionary power)
(4) Undertaking: the fiduciary had to have taken some kind of proactive UNDERTAKING to act in the best
interest of the alleged beneficiary or beneficiaries. (Fourth requirement later added (Professional institute of
the Public Service of Canada v Canada (AG) (2012)).
 This element has come into play because there can be a lot of scenarios where the first three are met
but unless there is a proactive undertaking the court is hesitant to imply a fiduciary relationship
 It is a question of fact in each case whether a fiduciary relationship exists – circumstances under which fiduciary
relationship will be found are not capable of precise definition and the law of fiduciaries must be receptive to novel
situations demanding such finding (Knoch Estate).
 Fiduciary duties are duties of loyalty: (e.g. duty not to make a secret profit, duty to act in the best interests of your
principal and to make full disclosure of all potential conflicts and to not allow any actual conflicts to arise).
 If there is a breach of a fiduciary duty, you are entitled to equitable remedies: disgorgement of profits, or loss of right
to a commission.
o There is confusion amongst the courts- judges recognize existence of fiduciary and then categorize every
breach of an agent’s duty as a breach of fiduciary - but sometimes it is K or tort.
 Duty of Confidence: If you receive confidential information you have a duty to use that information only for the
purpose for which it was conveyed. If you do something inconsistent with that purpose, you might be liable for the
losses that fall from that (International Corona v. Lac Minerals)
o Test for liability:
 “what is the person that was confided to entitled to do with that information? NOT What are
they prohibited from doing with it?”.
 The onus falls on the person who was given the confidential information to show that what they
did was NOT PROHIBITED. If the information was used for a prohibited purpose, then there
need to be an adequate remedy.
 Courts have proved reluctant to impose fiduciary duties to commercial parties in a real estate transaction where the
parties are not directly related. (International Corona v. Lac Minerals).

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 DUTIES OWED FROM AGENT TO PRINCIPAL

A real estate agent’s duty to his principal must be construed strictly (Re Crackle). In contract, there are express
contractual duties provided for in the listing agreement. Look to the agreement to see what they are.

As a fiduciary, when a licensee represents a client, a licensee serves the client in a fiduciary capacity (Elder; see above for
analysis).
Duty of Loyalty. Listing agents are fiduciaries owing the highest obligation of full disclosure and fair dealing to a vendor
who pays commission. This duty emerges from the confidential nature of the relationship, which arises when an agent
undertakes to list and sell property for a vendor under the MLS or exclusive listing agreements. A client can expect that a
listing agent will place their interests first (Knoch Estate). The duty includes (Re Crackle):
 Duty to make complete disclosure of any material face that would affect the principal in any way.
 Duty to keep confidential any information that would affect the principal’s negotiating positions.
 Duty not to put himself in a position where personal interest and obligation to the principal conflict.
 Duty to obtain the highest price possible.

Disclosure: the agent must tell his/her client everything relevant to the transaction within the agent’s knowledge. This duty
continues at least until the contract is terminated and relates to any information, no matter how trivial, which might in
some way affect the decision of the principal. The point is that the agent must ensure the principal has all the necessary
information to decide whether they want to go ahead with the transaction.
 RECR 5-9 disclosure of interest in a trade:
o If you have some interest in the trade of real estate (you or friend is directly or indirectly acquiring)  then
licensee has to disclose this.
 RECR 5-10 disclosure of representation and relationship in trading service:
o If there are other agency relationships (related entities in same transaction) out there in respect to that same
trade in real estate  the licensee has to disclose them.
o Before providing trading services to or on behalf of a party to a trade in real estate, a licensee must disclose:
 The nature of the representation the licensee will provide.
 i) expects to be providing trading services to or on behalf of any person in relation to the real estate,
ii) expects remuneration, iii) nature of licensee’s relationship with any person.

Duty of Care (exercise reasonable care and skill). The agent has the duty to exercise reasonable care and skill. In the
context of a real estate transaction, this means that the agent must exercise the degree of care and skill expected of an
agent in the relevant circumstances (Price v Malais). This includes the duty to obtain the highest price possible when
acting for the vendor (Re Crackle).

DUTIES OF AGENTS TO THIRD PARTIES

Duty of care not to negligently misrepresent information (Bango v Holt). This includes the duty not to deceive, withhold,
and mislead a third party, and extends only until the offer is accepted by the third party and no further (Knoch Estate).

Elements of Negligent Misrepresentation (Queen v Cognos)

1. There must be a duty based on a SPECIAL RELATIONSHIP between the representor and representee.
2. Representation in question must be UNTRUE, INACCURATE OR MISLEADING.
3. The representor must have ACTED NEGLIGENTLY in providing said negligent misrepresentation.
4. The representee must have RELIED IN A REASONABLE MANNER on the negligent misrepresentation.
5. The reliance must have been DETRIMENTAL to the representee in the sense that damages resulted.

Statutory (RECR):
 5-13 disclosure of latent defects:
o 1) material latent defect: cannot be discerned through reasonable inspection.
o 2) must disclose to all parties to the trade any material latent defect that is known to the licensee.
o 3) if a client asks a licensee to withhold disclosure, the licensee must terminate agreement and walk away.

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 o 4) not necessary if party has already received written disclosure from client.
 5-4: promptly deliver signed acceptance of offer from purchaser to vendor.
 5-6: not to make an inducement representation unless in writing, and clearly sets out all the details.
 5-9: disclose promptly any direct or indirect interest they have in the transaction.
 5-10: disclose promptly whether they (or related licensee) expects to provide services to any other party in relation to
the same transaction.

DUTIES OWED FROM PRINCIPAL TO AGENT

Diligence in clearing conditions on PSA: if there is a conditional term on the PSA, the principal must act reasonably and
diligently in attempting to fulfill it.

WHO IS THE PRINCIPAL?

In a typical real estate transaction, there will be a number of parties. The Seller, represented by a listing agent. The Buyer,
represented by a selling agent. It is not uncommon for the selling agent to be a sub-agent of the listing agent under the
MLS. In sub-agency, the agent bringing the buyer is actually working for the seller as a sub-agent of the listing broker.

Situations where sub-agency may be implied

 Intention of original parties:
o From the conduct of the parties to original agency, the usage of trade, or the nature of the particular business
which is the subject of the agency, it may be reasonably presumed that the parties to the contract of agency
originally intended that such authority should exist.
 Necessity:
o In the course of employment, unforeseen emergencies arise which impose upon the agent the necessity of
employing a substitute.
 MLS Agreement:
o Words of MLS agreement contemplate sub-agency. Industry practice demonstrates that this is a common
arrangement.
o Sub-agent authorized to accept offers on behalf of the seller in a MLS arrangement.

Situations where principal impliedly authorized agent to appoint sub-agent (because no agent has power to delegate
or appoint without authority):
1. Usage of trade: Where use of sub-agent is justified by usage of particular trade or business in which agent is
employed, provided usage not unreasonable, nor inconsistent with express terms of agent’s authority.
2. Principle knows: Principle knows, at time of the agent’s appointment, that the agent intends to delegate his authority.
3. Conduct shows intention: Where, from conduct of the principal and agent, it may reasonably be presumed to have
been their intention that the agent should have power to delegate his authority.
4. Necessity: In course of the agent’s employment, unforeseen circumstances arise which render it necessary for the
agent to delegate his authority.
5. Exercise of authority requires it: Where authority conferred is of such a nature as to necessitate its execution wholly
or in part by means of sub-agent.
6. Act done is ministerial: Act done is purely ministerial, doesn’t involve confidence or discretion.

Effect of a valid sub-agency:

When such authority exists and is duly exercised, privity of contract arises between principal and substitute, and the latter
becomes as responsible to the former as thought the principal had appointed him as an agent.
 As a result of finding this relationship in Carmichael, a Buyer’s acceptance of the offer to the sub-agent was
effective as an acceptance by the principal. You cannot make it impossible for someone to accept a counter-offer.

RIGHT TO REMUNERATION

Triggers to remuneration should be set out in the Listing Agreement. Ideally set out in clear, explicit, and specified terms
what the triggers are (Block Bros).

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Causation: the triggering event that cause the commission to become payable.
1. Legally enforceable agreement is entered into for sale of property (execution of a purchase and sale agreement).
2. Closing (most common & safest): actual completion of transactions.
a. Always the trigger in the commercial context – sophisticated parties who will not want to pay commission
until the funds are actually transferred.
3. Agent is effective cause of sale (even though they may not have been the actual agent completing the deal – this
situation is not very common) this is the case in some MLS, as the principal you might be wary of this. (Collette).
a. When the agent finds a purchaser who is “ready, willing and able to purchase” (Block Bros). This is very
broad. Court interpreted it to mean that BOTH the introduction AND the purchase must take place during the
term of the listing before commission was payable

If there is no contract
In the absence of an agreement, the agent whose work is the effective cause of sale is the one who is entitled to the
commission. Possible for there to be 2 effective cause agents, though this is rare (Collette).

Purchaser’s offer must be exact

To trigger the vendor’s obligation to pay, the licensee must produce a purchaser whose offer strictly complies with the
terms of the listing contract (Brian Fisher v Emerald Park Lodge Ltd).

No Rights to Remuneration if:

1. S4(1) RESA: unlicensed agent in contravention of S3(1) RESA.
2. When trigger events set out in Listing Agreement not met.
3. Where there is no privity of contract between vendor and agent.
4. When agent negligent.

Statute / Rules
 S3 RESA: if you provide RE services and you expect remuneration you have to be licensed.
 S4(1) RESA: Unlicensed agents can’t bring a claim for remuneration in relation to RE services, subject to exception
in S4(2) RESA for person who is licensed and acts in capacity equivalent to that of brokerage under RESA in another
jurisdiction
 S31 RESA: (1) Monies are paid when earned. (2) Monies are paid out in accordance with the sharing of the
commission that is going to be typical in a listing agreement between a listing agent and a selling agent.
 If there are two agents involved, then in a residential deal it will be split 50/50, but in commercial, it will be a lot
more flexible and will be typically a bit lower.

Remuneration based on difference between Listing and Actual Price

 5-14 no net listing: agent must not enter into an agreement for payment of remuneration based on the difference
between listing and actual price (basically, you cannot get paid extra for securing more money).

Deposit must be held in trust

Until the triggering event happens, the agent holds the money (the remuneration) in trust until:
1. Remuneration is earned (in accordance with RESA s.31 & 28(2)).
2. All parties consent (s.28(2)(a) RESA); or
3. Court orders to pay the money into court (s.33(1)) (when dispute arises)  this discharges brokerage from liability for
amount paid

Upon completion of the purchase, the deposit is released to the vendor and the agent will then take their cut.

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CONTRACT OF PURCHASE AND SALE

ELEMENTS OF A STANDARD FORM CONTRACT OF PURCHASE AND SALE

PARTIES*: >Full names of all parties, and full names and occupations of purchasers
SELLER Seller/Vendor:
BUYER • Can be anyone with an interest in the land
• If multiple parties, all must be included
• If owned by 2 people and only 1 is named in the K, that one person is selling their
interest (e.g. TIC)
• If owner of PR is company, exact company name as listed on title must be named as
seller
Buyer/Purchaser: Using “name and/or nominee”
• Nominee: someone to be named later. May not be certain enough should there be
problems later on
o Better way to deal with this: You are really trying to allow a different party
to take title. To circumvent this issue, you can make it permissible for the
purchaser to assign the contract to another party without the permission of the
vendor
Q to raise: How do parties intend to hold PR? If not specified, BC courts will usually presume
TIC

> If there are more than one owners of land (i.e. legal/beneficial owners), ALL OF THE
OWNERS OF INTERESTS OF THE LAND have to be parties to the sale of said land (Arnold
Nemetz)
 Caplan v. Coles: Classic situation of a person (Cole) who owns property through
company, but enters into PSA in his personal name. Purchaser refuses to close and
wants his deposit. Court said PSA void (the shareholder of the Co. doesn't own the
property, the Co. does)

PROPERTY* >Must contain complete and accurate description of PR to be sold

LEGAL  Legal description: Best and most certain way to describe a PR
DESCRIPTION &  Civic address: Next best way but can be less accurate.
CIVIC ADD.  Descriptive address: Riskiest (e.g. fifth house up the hill)
No uncertainty here: May be void for uncertainty if description inadequate
 If buying smaller parcel from larger parcel: If yet to be subdivided, specific PR
should be described by “metes and bounds’ (informal description based on unsurveyed
measurement – should include written reference to landmarks)
Chattels or fixtures: Important to include here what PR is a fixture to go with sale of land, and
what is considered chattel
1. PURCHASE >PSA must describe purchase price and related financing arrangements
PRICE*  In commercial TRXs, purchase price often adjusted to account for variety of factors
& FINANCING  In residential TRXs, parties must rely on customary adjustments
ARRANGEMENTS Financing must be clear:
 Uncertainty in financingPSA unenforceable: Block Bros Realty Ltd v Occidental
Hotel Ltd: PSA said ½ purchase price in cash, balance by mortgage and/or agreement
for sale at $4,100/month at 7% P.I.” Agreement not binding because financing
unclear, S not bound to sell
 Uncertainty in financing PSA unenforceable: Arnold Nemetz: B and S signed
PSA whereby in addition to cash payment (including deposit), B to pay “the balance…
by A/S at 8.5% interest P.I. over 10 years with pay up clause after 5 years”. S refused
to complete, and B sued for specific performance. Court found K too vague to be
enforceable. No way to ascertain on what basis interest calculated: “P.I.” with “over
10 years implied instalments, but is this per annum, or some other time period?
Assuming instalments intended, don’t know what period should be paid. Court could

15
 infer reasonable interval, but courts will not make K for the parties, and will not attach
meaning where can’t be inferred from wording, and therefore can’t reflect agreement
by parties.
 Courts will do their best to attach meaning: Arnold Nemetz: “A deed shall never be
void where the words may be applied to any extent to make it good”. In other words,
while courts will not make a K for the parties, they’ll do their best to attach meaning
to words in written agreement, but only if meaning is reasonably attachable.
2. DEPOSIT Standard form: “A deposit of $_____ which will form part of Purchase Price, will be paid on
following terms:______. All monies paid pursuant to this section will be delivered in trust to
_____ and held in trust in accordance with provisions of RESA. In the event the Buyer fails to
pay the Deposit as required by this K, the S may, at the S’s option, terminate this K”
Deposit is not consideration: Consideration from B is promise to pay purchase price –
exchange of promises is consideration, not deposit. Deposit is good faith money such that if B
defaults, may forfeit deposit.
3 purposes: (1) Partial payment of purchase price (2) Guarantee of performance (3) Means to
access remedies
>Deposit to be paid on terms set out in the K, but standard from K doesn’t set out what happens
to deposit if something goes wrong (may be required to pay into court under S33 RESA)
3. TERMS & >List conditions that will hold K in suspension until fulfilled.
CONDITIONS >”Each condition, if so indicated, is for the sole benefit of the party indicated” Assigns right
of who can waive condition
4. COMPLETION >These dates may be different.
5. POSSESSION >Must keep in mind who bears the risk of things happening to the PR between dates.
6. ADJUSTMENTS >Adjustments to purchase price, to factor in credits and debits (e.g. property taxes, rent, etc)
7. INCLUDED ITEMS >Question of whether items are chattels or fixtures, as only fixtures will go with the land
>If wish for something to be included which may be classified as chattel, include it here
8. VIEWED >PR will be in same condition on possession date as on date it was viewed
*This is a covenant and representation. If struck out and replaced with “as is”, no
representation made about condition
9. TITLE >Should be broad enough to include things that are registered on title, and things unregistered
but may affect title (e.g. lease of 3 years or less). In commercial context, lawyers will search to
determine whether statutory liens on title.
>If discrepancy between title agreed to and actual title, purchaser has remedies:
1. Purchaser can walk away from deal (not what they Kd for)
2. Purchaser can close and sue vendor for remaining encumbrance
3. Purchaser can demand specific performance (refusing to close until encumbrance dealt
with 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 B to the S 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 K will be delivered in
registrable form where necessary and will be lodged for registration in the appropriate LTO by
4pm on the completion date”
12. TIME >”Time is of the essence” specifies that the K must be met perfectly in terms of deadlines. If
both sides miss a time, the K/obligations continue and one party has to “reset” the time. If the B
misses a deadline, S has the option to terminate the K and the amount paid by B will be
“absolutely forfeited to the S”
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 S may, at the S’s option, terminate this K, and, in
such event, the amount paid by the B will be absolutely forfeited to the S in accordance with

16
 the Real Estate Act, on account of damages, without prejudice to the S’s other remedies.”
13. BUYER >Allows for use of undertakings to close the deal where buyer relying on financing. If a K
FINANCING doesn’t authorize use of undertakings to close, lawyers not authorized to give undertakings.
14. CLEARING
TITLE
15. COSTS >B bears the cost of conveyance. Courts interpret this to mean that B responsible for
preparing conveyancing documents
Standard form: “The B will bear all cots of conveyance and, if applicable, any costs related to
arranging a MTG and the S will bear all costs of clearing title”
16. RISK Standard form: “All buildings on the PR and all other items included in purchase and sale will
be, and remain, at the risk of the S until 12:01 am on the Completion Date. After that time, the
PR and all included items will be at the risk of the B”
>B is beneficial owner, and S is deemed trustee with positive duty to maintain the PR. If
something happens to PR before closing, S bears the risk.
Important not to alter this: At equity, courts held that beneficial ownership of PR passes to B
when parties enter binding PSA, so from date of binding PSA, any damage at B’s risk unless
parties agree otherwise
17. PLURAL Standard form: “In this K, any reference to a party includes that party’s heirs, executors,
administrators, successors and assigns, singular includes plural and masculine includes
feminine”
18. >Limits representations and warranties about PR only to those that are written. Created with
REPRESENTATIONS doctrine of merger in mind, and preserves right of party to sue on certain assurances in PSA,
& WARRANTIES creates the survival of these representations and warranties after purchase.
Standard form: There are no representations, warranties, guarantees, PRs or agreements other
than those set out in this K and the representations contained in the PDS if incorporated into
and forming part of this K, all of which will survive the completion of the sale.”
19. AGENCY >If an AG has a relationship to either B or S, must be set out here.
DISCLOSURE >If B and S agree to dual agency, must indicate this here and must also sign Limited Dual
Agency Agreement.
21. ACCEPTANCE Standard form: “The S and the B specifically confirm that this K of P&S is executed under
IRREVOCABLE seal. It is agreed and understood that the S’s acceptance is irrevocable until after the date
(B&S) specified for the B to either:
 A: fulfill or waive the terms and conditions herein contained; and/or
 B: exercise any option(s) herein contained.”
22. THIS IS A LEGAL Standard form: THIS IS A LEGAL DOCUMENT. READ THIS ENTIRE DOCUMENT
DOCUMENT AND INFORMATION PAGE BEFORE YOU SIGN.
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 K
of P&S on the terms and conditions set forth.”
24. ACCEPTANCE Standard form: “The S (a) hereby accepts the above offer and agrees to complete the sale
upon the terms and conditions set our above, (b) agrees to pay a commission as per the Listing
Contract, and (c) authorizes and instructs the B and anyone acting on behalf of the B&S 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 AG, as requested, forthwith after completion”

s.59 LAW AND EQUITY ACT

Oral contracts:
 Historically, the Statute of Frauds was an English statue that required that transactions with regards to land or an
interest in land be in writing (BC has inherited this law but modified it slightly).
 Law and Equity Act s. 59: deals specifically with this issue

***Think about how s. 59 affects ALL ASPECTS OF A CONTRACT: oral variations, oral agreements, half signed
agreements, poorly draft agreements***

17
s.59 usually applies where there are variations, amendments or additions to the contract (i.e. two parties will make a
written agreement and then a month later before closing someone will come to the other and make an informal agreement
and then there is a closing).

Law and Equity Act s. 59

(1) In this section, “disposition” does not include
(a) the creation, assignment or renunciation of an interest under a trust, or
(b) a testamentary disposition.
(3) A contract respecting land or a disposition of land is not enforceable unless one of these three things are true:
 Note: the statute says it is not enforceable, but not invalid. What is the difference? The agreement respecting land
is unenforceable, but the contract itself/the agreement between parties that does not relate to land are not
invalidated or unenforceable – some of the agreement may still be potentially valid.
a. WRITING: there is, in writing signed by the party to be charged or by that party's agent, both an indication
that it has been made and a reasonable indication of the subject matter,
 That writing has to be signed by the party to be charged (i.e. only need the signature of the party that you are
trying to put the charge against). This provides some leeway because if the contract is only signed in writing by
one party, that may be allowable (may be less than a complete contract).
 The writing has to have a reasonable indication of subject matter (has to reasonably describe the land).
 Email is okay (Nicholas Prestige).
b. DOCTRINE OF PART PERFORMANCE: the party to be charged has done an act, or acquiesced in an act of
the party alleging the contract or disposition, that indicates that a contract or disposition not inconsistent with
that alleged has been made, or
 The party alleging the contract, in reasonable reliance on it, changed their position so that it would be inequitable
to not enforce it (e.g. someone got a mortgage and signed it and it is now enforceable – they will be charged
interest)
 Includes payment, part payment, deposit: 59(4): act of party alleging contract or disposition includes payment
or acceptance by that party or on that party’s behalf of deposit or part payment of purchase price.
 Seller or Seller’s agent accepting deposit from Buyer: where Seller alleging that contract is not enforceable,
the Seller or Seller’s agent accepting deposit from the Buyer is sufficient for part performance (Nicol v Weigel:
Original K altered orally. Later, B paid deposit to S’s agent, which was accepted and acknowledged. Later, S
alleged that K unenforceable because altered orally, and B wants specific performance.)
a. DOCTRINE OF RELIANCE: the person alleging the contract or disposition has, in reasonable reliance on it,
so changed the person’s position that an inequitable result, having regard to both parties' interests, can be
avoided only by enforcing the contract or disposition.
 Same situation as above, but here the person alleging the contract does something such that if the agreement is not
enforced, it would be unfair to them (i.e. the vendor passed title to the purchaser, but the purchaser never actually
paid – vendor has thus changed his position and if the agreement was not enforced, it wouldn't be fair to the
vendor)

Email can be used to make a binding agreement (Nicholas Prestige Homes).

Exception to written requirement

• Leases of 3 years or less s.59(2): (a) K to grant lease of land 3 years or less (no need for actual occupation), (b)
Grant of lease 3 years or less.
• Term left out or wrong 59(7): Writing can be sufficient even though term left out or wrongly stated.

Can extrinsic evidence be used to supplement a contract?

However, consider the Parole Evidence Rule = oral evidence related to a written contract 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.
 Exceptions to the parole 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

LETTER OF INTENT (LOI)

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A LOI is a signed agreement between parties regarding the subject matter that summarizes their business intentions and
typically expressly states that it is not a binding agreement (either in whole or in part).
 Parties do not intend the LOI to be binding.
o It is an expression of interest or a summary of the terms under which they would be willing to get into a deal.
o This can be dangerous because courts can impose binding agreement where they find intent to be bound.
 There may be some aspects of a LOI that the parties do want to be binding.
 Lately, instead of LOIs, there is a process where vendors announce an intention to sell, and ask purchasers to bid for
the right to buy via a letter of expression of interest (who you are and what you are willing to pay).

1. Test for whether LOI demonstrates existence of binding contract (objective)

A contract is formed when there is, to all outward appearances, a contract. The test does not depend on an inquiry into the
actual state of mind of the promisor, but how the promisor’s CONDUCT would strike a reasonable person (fact-
dependent).
 Canada Post: LOI between parties drafted, deal doesn’t complete. Buyer wants specific performance. From
perspective of reasonable person, Canada Post did not intend to be legally bound by the terms of the LOI.
o Court looked at terminology used, LOI stated “not legally binding”.
o Condition precedent showed that all documents stated that “agreement subject to final approval by board”.

2. Test for whether existing contract is enforceable

1. Must meet s.59 L&E: written requirement.
a. Note, a LOI is usually not complete because it just talks about business terms, and doesn’t deal with the
legal stuff that needs to happen in the transfer of the property.
2. Minimum requirements of Purchase Sale Agreement:
a. 1) parties, 2) property, 3) price. If 1 or more are missing, court is unable to determine scope or nature of
agreement between the parties.

OPTIONS / RIGHTS OF FIRST REFUSAL

Option
A special kind of agreement that is considered in and of itself to be an interest in land. They consist of two agreements.
 First agreement: “I grant you an option to buy my land” – this agreement has to have its own consideration and its
own terms.
o If you exercise this option, it creates a second agreement.
o There is often a fee for the granting of an option (for the party to have the privilege of being able to choose
whether you buy the land or not).
 Second agreement: an agreement to actually sell the land – has its own separate consideration and terms.
o The consideration of actually buying the land is the purchase price.
 If each agreement doesn’t have its own separate consideration and terms, it would not be considered an option.

Two things to remember about Options:

1. Options are NOT an agreement to agree  an option is an agreement.
2. An option IS an interest in land  like a lease, mortgage, or easement, an option is granting the option holder an
interest in the land. This carries some consequences. An interest in land can be registered under the LTA, but this
also means you can sell, mortgage, or otherwise deal with, subject to the terms of the option.

Right of First Refusal

Like an option, but a step down. A Right of First Refusal is an interest in land, it is registrable, transferable, mortgageable,
etc.
 Granting an RFR:
o “If I get an offer from a third party, I will take that offer to you first, and you have to option to buy that land
on the same terms as the offer that I got. If you choose to do that, the offer that came in from the third party
will make up the terms of our contract”.
 Thus, RFRs also contain two contracts.

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 o 1) A promise the RFR holder has the first chance to buy the land.
o 2) The term of the offer that came in from the third party will make up the terms of the contract.
 This is also an interest in land that is registrable, transferable, mortgageable.

3P’s: PARTIES, PRICE, AND PROPERTY

Courts will give effect to intention but will not make a contract for the parties (Arnold Nemetz). “Every effort should be
made by a court to find meaning, looking at substance and not mere form, and that difficulties in interpretation do not
make a clause bad as not being capable of interpretation, so long as definite meaning can properly be extracted”.
 First, look to 4 corners. If real intentions of parties can be collected from language within the 4 corners of the
instrument, the court must give effect to such intentions by supplying any necessarily to be inferred (Arnold Nemetz).
 Necessity exception. What’s reasonable as a matter of machinery where contractual intention is clear, but the contract
silent on some detail (Arnold Nemetz).

Test for uncertainty (Arnold Nemetz): having regard to relevant circumstances, is the language used “so obscure and
incapable of any definite or precise meaning” that the court is unable to attribute to the parties any contractual intention?

If uncertainty  unenforceable contract. If a contract is so vague and so uncertain as to its essential matters, it must be
held to be unenforceable for lack of mutuality (Arnold Nemetz).

PROPERTY Test for certainty: Must identify the property in such a way that another party could identify it.
• Best way: PID (9 digits) + Legal descriptor.
• Alternative: Civic address (But issue with this is that cities always lag behind LTO.)
• Worst way: Descriptive address. (Will likely run into trouble here due to vagueness).
>Subdivisions: per the Planning Act, the party proposing to do the subdivision makes the application
(Dynamic Transport: Since it was the vendor proposing to sell this land to the purchaser, the court implies
that the vendor had the statutory obligation to make the application for the subdivision).

If the vendor is the cause of the uncertainty of the description of property, they cannot take advantage of
uncertainty to void a PSA Dynamic Transport.

PARTIES Test for certainty: Every party who has an interest in the property muse be named in the contract (legal
interest holders and beneficial interest holders).
• “[NAME] (and/)or nominee”:
o Courts have generally accepted this phrase as sufficiently certain (though arguably uncertain
because you’re unable to identify who the purchaser is).
o This “does no more than confer on the B the right to have the FS transferred into the name of
the nominee. Does not and cannot make nominee, known or unknown, a party to the K or
confer upon nominee, known or unknown, any rights vis-à-vis the vendor. It is not an
assignment” (McCullagh).
▪ S (McCullagh) is registered owner in FS and accepted offer from B “and/or
nominee” to purchase lot. B later assigned all of his rights under KPS to company,
and company assigned to 41106 BC. KPS between S and B subject to vendor take-
back mortgage, which was an allegedly assigned liability. B cannot get rid of
liability to give his covenant or guarantee under the vendor take-back mortgage)
• “[NAME] and nominee”:
o Courts are less settled about this phrase. Some courts have rejected this phrase as uncertain
because only know half of who a purchaser is.

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 • Assignment as solution: Including express provision that allows you to assign the contract to someone
else is sufficiently clear/certain.
o THERE IS NO PROHIBITION ON ASSIGNING A CONTRACT if there is no express
language in the agreement stating otherwise – you can assign a contract if the K doesn't
prohibit it (i.e. if the K is silent).
o Seller doesn’t like this: brings up question of whether Buyer giving away obligation to
purchase to someone without resources.
o No assignment of responsibility: “Purchaser cannot, without the consent of the vendor,
transfer his liabilities” (McCullagh) B not released from obligation to buy. If assignee does
not pay, initial purchaser still obligated to pay. “Assignment [of rights] does not destroy
original interim. It remains the operative transaction. Assignment adds to the original
agreement a supplementary agreement. It is the transfer of a right without the consent of the
debtor.” (McCullagh).
o The right to purchase that you get though contract is a chose in action (personal right) that
you can transfer to someone else without consent, UNLESS the contract requires you to have
consent (but the original purchaser remains on the hook – i.e. if the assignee doesn’t pay, the
original purchaser has to pay).

S must hold title in own name: s.6 PLA: It is the duty of any person conveying land to register his own
title, so that any person to whom the land is conveyed may be able to register his title. B has right to
demand conveyance from S, and to refuse conveyance from 3P (Caplan)  Classic situation of a person
(Cole) who owns property through company but enters into PSA in his personal name. Purchaser refuses to
close and wants his deposit. Court said PSA void (the shareholder of the Co. doesn't own the property, the
Co. does)

PRICE Test for certainty: Must either state a single figure or a clear method (formula that’s clear and
descriptive, by appraisal, by 3P).
• Uncertainty in financing  PSA unenforceable: Block Bros Realty Ltd v Occidental Hotel
Ltd: KPS said ½ purchase price in cash, balance by mortgage and/or agreement for sale at
$4,100/month at 7% P.I.” Agreement not binding because financing unclear, S not bound to sell
• Uncertainty in financing  PSA unenforceable: Arnold Nemetz: Two parties come up with a
purchase and sale agreement on a scrap paper. Part of the purchase price to be satisfied is the
vender taking a mortgage from the purchaser/ The terms were not well written – not
understandable. Thus, when there was a disagreement about this, the parties had to go to litigation
to sort it out Court found K too uncertain to be enforceable. Court could infer reasonable
interval, but courts will not make K for the parties, and will not attach meaning where can’t be
inferred from wording, and therefore can’t reflect agreement by parties.

Key: what was the intention of the parties? The court will look to all possible evidence to show intention, and if so, what
were the terms that they intended to be bound to. Courts have a bias towards finding a commercial agreement.

Elements of the Contract:

1. Does the contract adequately describe the property?
a. Is the description too ambiguous?
i. Court refused to go beyond 4 corners of the contract or use extrinsic evidence to complete the contract
when unclear what property was being transferred (Zilka)
ii. “4 acres more or less” = description of property being transferred, court used extrinsic evidence
(parties conduct during negotiations) to identify property and said description was sufficiently certain
(Dynamic Transport)
1. Dynamic distinguished Zilka by stating that even by reviewing extrinsic evidence in that case,
you couldn’t clarify the parties’ intentions.

2. Does the contract adequately describe the parties?

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 a. Every party who has interest in property has to be named in the contract (legal and beneficial interest holders)
i. “NAME or nominee” = generally is sufficiently certain – might create ambiguity
ii. “NAME and nominee” = some accept b/c sufficiently certain some reject b/c only know who half the
purchaser is
Can get around the and/or nominee rule by including an assignment to add another party to the contract
later on.
b. If vendor is a person but the property is registered under shell company, this is title default (Caplan)

3. Does the contract adequately describe the price?

a. Must state either a single figure or a method (formula that is clear and descriptive)
i. E.g. Balance of $23,500 by A/S at 8½% interest P/I over 10 yrs with a pay up clause after 5 years =
unclear (Arnold v Nemetz)

4. Can courts do something to give effect to parties’ intentions to make something unambiguous?
a. Courts will try their best to decipher intent of parties, but cannot go as far to write a new contract for the parties
(can give effect to written words of parties but cannot go elsewhere) (Arnold v Nemetz)
b. To give effect to parties’ intentions, courts can imply terms into the contract by looking within 4 corners of
agreement (First City Investments)
c. Court went even further in Canada Post by asserting courts can imply terms from 4 corners of the contract
AND by looking at parties’ conduct and outside documents
i. Dynamic Transport is another example of this principle in action

IMPLIED TERMS OF A CONTRACT

Regardless of the terms of the contract, there are some terms that are implied by statute and common law.

Form A – Statutorily Implied Covenants

You need to use this form if you want to register the property in the LTO. There are a bunch of implied covenants under
the Form A (ss.185, 186 LTA) – if you want to change any of them you have to say so in the PSA. These require: free of
all encumbrances (property and buildings), assumption of the transfer of the fee simple, and you can only transfer what
you’re the registered owner of.

s.186 LTA: when using a Form A transfer form as required by s.185 LTA, there are certain implied terms:
• (2) Importing covenants: transfer using Form A will be deemed:
o (a) to be made pursuant to Land Transfer Form Act,
o (b) to use expanded terms in LTFA despite using only shortened terms in Form A and to have same
effect of having used expanded terms,
o (c) to be made by transferor as covenantor and transferee as covenantee.
• (4) No need for words of transfer: transfer of freehold for valuable consideration using Form A will transfer the
estate whether or not it contains express words of transfer.
• (5) No words of limitation transfers a FS: if no express words of limitation used, then a FS estate is transferred
• (6) Express words of limitation: if express words of limitation, then transfers the freehold estate of transferor subject
to limitation.
o Should mention leases of 3 years or less because will not show up anywhere else!
• (7) Express reservation/condition: if contains express reservation/condition, transfers freehold estate of transferor
subject to that reservation/condition.
• (8) Nemo dat: the transferor can’t transfer an estate greater than what he has as registered owner.

Implied covenants say that on the transfer of the land: you’re transferring free of encumbrances, as well as all of the
buildings, improvements, etc. (everything attached to the land), also that you’re transferring free from any claims from
other people (it’s “good title”), and that the transferor will take every other step necessary to ensure the lands are
transferred to the buyer/transferee.
 Why are these implied covenants important?
o If you use Form A, you as transferor are telling the transferee that there are no encumbrances. If that’s not

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 true, you would include that in the purchase agreement.
 Most important here is the lease of 3 years or less – if you’re transferring a piece of land where a
tenant is occupying in a lease of 3 years of land, you want to make sure you have evidence to offset
that covenant.

Common Law Implied Covenants also exist

E.g. Warranty of fitness (Cardwell v Perthen): an implied covenant in BC for buying uncomplete houses, there is an
implied warranty that:
 House will be reasonably fit for habitation.
 Work, including work done before execution, will be performed in a good and workmanlike manner.
 Vendor will provide good and proper materials for that purpose.
The warranty does not apply to:
 Work already completed before the execution of the contract of purchase and sale AND visible upon inspection.
 Used homes that have been previously completed, even those which have undergone extensive renovations by the
vendor.

Assignment
 Assignment is the assignment of rights – not responsibilities – you are not released from your obligations to buy, and
if the person you assign to does not want to buy, you still have to buy (i.e. you have to pay for house but house is
going to be put in some other person’s name)
o Absent a provision in an interim agreement of sale against assignment, a purchaser is at liberty to assign their
contractual rights as an equitable interest in land, but purchaser cannot without the consent of the vendor to
transfer their liabilities (411076 BC Ltd v McCullagh)
 Amendments to Assignment Rules in BC: The amendments provide that a licensee preparing a proposed contract
for the purchase and sale of real estate (an “offer”) must include the following terms (the “Standard Assignment
Terms”) unless otherwise instructed in writing by the person to whom they are providing trading services:
1. This contract must not be assigned without the written consent of the seller; and
2. The seller is entitled to any profit resulting from an assignment of the contract by the buyer or any
subsequent assignee.
 The amendments further provide that licensees must take certain steps if they are involved in a potential real
estate transaction where an offer to be presented to the seller does not include the Standard Assignment Terms.

Contractual Terms:
Want to focus on the court either trying to find the terms or terms being implied.
1. There is an effort by the courts to try and find a commercial agreement.
2. There is a presumption by the courts against implying their own terms into an agreement.
3. Certainty of the fundamental terms is essential to finding intention.
4. It is an objective test to find that intention between the parties.

DUTY OF HONESTY / GOOD FAITH

Parties must generally perform contractual duties honestly and reasonably, and not capriciously or arbitrarily. Parties must
not lie to each other or knowingly mislead each other about matters directly linked to performance of the contract. Note,
this is no equal to the duty of loyalty or the duty of disclosure (Bhasin v Hrynew).

Bhasin v. Hrynew SCC  There is a duty of good faith, and here, it had been breached.
Over the years, there have been disparate and varied principles that seem to point to a duty to act in good faith in
contractual relationships – SCC organizes these principles:
 GOOD FAITH PERFORMANCE under the contract is A GENERAL ORGANIZING PRINCIPLE.
 A subcategory of this general duty is that there is a duty to act honestly.
o In this duty to act honestly, the parties should have reasonable expectations as to the actions of each other.
o This is NOT a fiduciary duty, nor is it a duty of loyalty – there must remain a freedom on each side to pursue
their own interest.
o But they cannot act dishonestly, and they cannot mislead each other.
o Note: there is NO DUTY OF DISCLOSURE.

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 In trying to bring certainty to these terms, they have actually created more uncertainty because they expanded
whatever duty may have existed previously. This duty applies to parties who are in a contract.
o PARING IT BACK It requires a context specific analysis of honesty and reasonableness to give
consideration to legitimate interests of each party.
 BUT we must still give substantial weight and freedom to the parties to pursue their own interests.  the
uncertainty about this case lies in this statement
 It is likely that this principle will NOT apply to the negotiation phase, but that is unclear.
Key: Parties who are performing their obligation in a contract should not act in a way that actively misleads or lies to the
other party.

DEPOSIT

Deposits serve 3 principal functions (Lozcal):

1. Partial payment; of purchase price.
2. Good faith; proof of purchaser’s sincerity and guarantees that the purchaser means business.
3. Damages; genuine deposit has nothing to do with damages, but is a portion of it.

When you use the word “deposit”, it carries a specific meaning. In real estate, deposit is dealt with specifically by the
language of the contract, but there are also common law implications.
 If something is determined to be a deposit, the law says that it is imbued with special characteristics.
 Without any contrary intention in the agreement, the deposit is forfeit to the vendor if the purchaser defaults on the
agreement.

Typical features of a deposit in a real estate agreement

1. Depending on the structure of the agreement, the deposit is generally refundable until all conditions have been
satisfied.
2. A deposit is generally held by a party who is not party to the contract. In the standard form contract it states that the
agent will hold the deposit (in trust).
3. s.28 RESA: if it is a licensee under the act who has been paid the deposit, they have certain obligations:
a. Must have over deposit to brokerage, who then deposits it into a trust account. If agents/licensees want to
deviate from this, they have to make a separate agreement.
b. Nobody gets the money until the transaction is closed. Upon close, it goes to the vendor unless there is an
agreement to do otherwise.
c. Most agents will require some sort of release from all the parties in order to release the deposit money.
Alternative to s.28 RESA  s.33 RESA:
 The stakeholder holding the money in trust can pay it into court. The court then holds that money until someone
applies for it and the court determines what to do with it.

Key: the deposit is a pre-estimate of the damages that a vendor might suffer if the deal doesn’t close. The law says that it
should be a genuine pre-estimate. If it is too big, it starts to look like a penalty, which would not be enforceable.

Is this a genuine deposit?

The court must determine the intention of the parties, as to whether the amount was intended as a genuine deposit, a
penalty, or as limitation on the depositor’s liability. This is a matter of construction, judged at the time the contract is
made, taking into account the language and circumstances of the case (Lozcal).
 Labels not conclusive.
o Mere use of words “liquidated damages, penalty, deposit, penalty” not conclusive.
 “Instalment” of purchase money.
o Not a deposit – if buyer breaches contract and seller elects to terminate the contract, the buyer is still entitled
to recover sum paid at common law.
 Liquidated damages.
o Not a true deposit, but a genuine pre-estimate of loss to the seller in the event of a breach by the buyer. The
intent is to limit liability, so the seller can retain this. Doesn’t have to be a fixed sum.

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 Penalty.
o Sum fixed “in terrorem” such as to function as a threat or as punishment in event of a breach 
unenforceable.
Principally, a party can always sue for damages regardless of the action. The phrase “liquidated damages” does not
automatically limit a party’s right to go after more damages.
 In standard contracts, you will often see phrases like: “on a breach of the purchaser, the vendor can retain the deposit
either in full satisfaction of its claims to the purchaser OR without prejudice to its claims to the purchaser”.
 This will make it clear whether damages are limited or not.

DISPUTES

Forfeiture clause
The law is such that, if there is no forfeiture clause and the contract is terminated, the deposit is returned to the purchaser.
If it is truly found to be a deposit in law, or there is a forfeiture clause, then the money can be retained by the vendor
(Stockloser).
 However, equity says that the purchaser can apply for relief from that forfeiture. Test:
o 1) is the forfeiture penal in nature? Is the size of the deposit out of all proportion to the damages the
vendor can suffer?
o 2) if it is NOT seen as a penalty, the question is: is it unconscionable for the vendor to still retain it?
 The test is for penalty and unconscionability should be applied at the time that they need to be considered (i.e. at
breach, and not before the contract was being signed).

s.24 Law and Equity Act

In BC, the courts have statutory authority to provide relief from forfeiture.

A breach by a buyer is repudiation of the contract. This gives the seller 2 options:
1. Accept repudiation, terminate the contract, and take the deposit  then sue for damages up to the point of
termination.
 Where the contract contains forfeiture clause:
o If the seller takes the deposit, the buyer can try to argue (applying Stockloser test) that the amount was
actually a penalty (sum forfeited out of proportion to damage suffered; not a genuine pre-estimate), and that
it would be unconscionable for the seller to keep the deposit.
 Where the contract uses the term “liquidated damages”:
o The buyer can try to argue that the seller is not allowed to claim damages that exceed the amount of forfeited
deposit. But, the intention the buyer’s liability must be very clear (Lozcal).
o Remember, mere use of words “liquidated damages”, “penalty”, or “deposit” in the 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 the parties intended to limit depositor’s liability in the event of breach to
the fixed sum, court may enforce liquidated damages clause.

General Rule: is that the deposit will be forfeited to the seller upon repudiation by the buyer but can be overridden by the
plain wording of the contract. If the plain wording shows that the buyer’s deposit will be forfeited to the seller in the event
that the seller elects to terminate following repudiation by the buyer, and the seller does not terminate, the buyer may be
entitled to the return of the deposit (Winley Investments).

2. Continue to enforce the contract and not take the deposit  keeping open the possibility of suing for specific
performance or damages later.
 If the seller wishes to enforce the contract, the seller must not take the deposit because doing so would be inconsistent
with keeping the contract alive.

Specific Performance (Winley):

 It is an affirmation that the contract remains alive and effective.
 It is an equitable remedy, so parties wishing to use it must come with clean hands.

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Note: trying to take the deposit is contrary to the idea that the contract is still alive, and therefore contrary to asking for
specific performance. In Winley, the contract was not terminated (because the vendor was asking for specific
performance), so the vendor did not have a right to the deposit. A vendor cannot take and keep the deposit unless the
purchaser has repudiated the agreement and the vendor accepts the termination.

Failure to Pay Deposit

Reserve Prop v 2174689 Ontario Ltd: To determine whether a failure to pay a deposit permits a party to terminate the
agreement depends on whether there was:
1. an express term allowing such action OR
2. if there was a fundamental breach, which is determined by the following 5 factors:
 The ratio of the party’s obligation not performed to the obligation as a whole (deposit to purchase price
ratio).
 The seriousness of the breach to the innocent party.
 The likelihood of repetition of such breach.
 The seriousness of the consequences of the breach.
 The relationship of the part of the obligation performed to the whole obligation.
Ask yourself whether late payment is material (fundamental) enough to permit the vendor to terminate the agreement.

CONDITIONS PRECEDENT

When you answer these questions, do two things:

1. Talk about whether that condition is ENFORCEABLE – remove it from the agreement entirely and ask whether
on its own, is it an obligation that is enforceable against a party?
a. Greg: the courts look at enforceability of conditions as a bit of a spectrum called “discretion”.
b. There is threshold question: are any of the parties bound by this condition? What is the discretion that
the party that has an obligation has to fulfill this condition?
i. If they have COMPLETE discretion (at their whim whether they fulfill it or not) it is NOT
enforceable – too subjective. (Subjective Conditions)
ii. If it at the opposite end, almost ZERO discretion, it’s not really a condition anymore – it is too
objective (“I’ll buy this house if my friend John says I will”) – have no choice as to whether it gets
fulfilled or not – NOT enforceable. (True Condition Precedent)
c. The further you get to the two extremes; less likely you will find the condition enforceable. Best to be in the
CENTRE (Giffen 4 categories – hybrid conditions – obligation on the party with some kind of standard to
meet: what level of discretion – has to be a reasonable level of discretion that is not too objective or to
subjective)
2. Common error: don’t forget to describe your thought process when going through this spectrum – tell Greg how you
thought it through!

Conditions are used when parties don’t want to make a binding commitment to a contract, rather, they want their
agreement to be conditional on something. In order to do that, they use conditions precedents (Ex. subject to financing or
subject to inspection)

Sometimes, when condition precedents are included in the K, they have the unintended effect of either:
 Converting what was intended to be a K of purchase and sale into an option; OR
 making that K of purchase and sale unenforceable

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What is the difference between an option and a CP?
1. Option: something that is completely discretionary – the ability of one party to call for the purchase of a piece of
property before a determined time.
2. Condition precedent: typically, not completely at the discretion of the purchaser - here the purchaser still has
discretion, but they have the obligation to follow through on that if, for example, the financing is obtained (Ex.
Agreement is subject to financing from HSBC at an annual rate of 2.5%)

What does unenforceable mean? Typical fact pattern: Vendor and purchaser enter into a K for purchase and sale which
has some type of condition. Before the condition is either satisfied or waived, one of the parties walks away. One party is
upset, sues, and try to force the completion of the transaction. It is up to the court to decide whether the transaction is
enforceable. The answer depends on the type of condition that was used on the K.

TYPES OF CONDITIONS (True Condition, Subjective, Mixed)

1. True Condition Precedent (Objective condition)

The fulfillment of the condition depends wholly on the act or will of a third party (i.e. someone who is not the buyer or
seller has to enact discretion or an event has to occur). For example:
 The purchase is subject to the approval of a board of directors (Canada Post).
 The purchase is subject to a rezoning or a subdivision (Zhelka).

Effect  PSA unenforceable: the effect of a true condition precedent is to suspend the obligations of the parties until that
condition is satisfied.
 Until the event that constitutes the true condition precedent occurs, there is no right to compel any party to perform
the contract because “there can be no breach of contract until the event occurs” (Turney v Zhelka).
 Obligations are merely pending until occurrence of the event constituting the condition precedent (Dynamic
Transport).

Case law principles on True Condition Precedent

1. So long as there is evidence that the parties intended to make the contract, merely including a true condition precedent
does not affect the existence of the agreement
2. Best efforts can be implied: In more recent years, courts have recognized – even if you have a true condition
precedent, the courts will imply an obligation on one or both of the parties to use their best effort to bring about the
fulfillment of the true condition precedent.
a. Dynamic Transport: here, the courts have gone as far as to say that the failure to make best efforts can give
rise to a claim of damages. You see courts trying their best to find a commercial agreement.
b. Dynamic Transport – a court can imply a true CP that subdivision was a requirement even though the K was
silent.
3. At CL, true condition precedent cannot be waived by either party, even if that condition was solely for the benefit of
one of the parties. The only exception at CL is that the K itself and the condition precedent itself had to expressly
allow that party to waive. (Turney v Zhelka)
4. Under the L&E Act s. 54 – there are certain circumstances under which you can waive a true CP even if your contract
does not specifically allow it.
a. the condition is for the sole benefit of the party benefiting from it,
b. the contract is capable of being performed without fulfillment of the condition precedent, and
c. if there is a deadline, you have to meet the deadline to waive it, and if there’s no deadline, the waiver has to
done within a reasonable time – you have to do it in a timely matter

Failure to complete condition: necessarily terminates the contract between the parties (Kitsilano).

2. Subjective Conditions
Conditions to which the fulfillment of which is completely dependent on the state of mind of one of the parties – there
is no limit to discretion. Examples:
 Purchaser being satisfied with the inspection at its sole discretion.

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 “Subject to purchaser being satisfied with detailed inspection of the building...by purchaser’s architect/engineer”…
results of such inspection to be to sole satisfaction of the purchaser” (Kitsilano Enterprises).
 “Subject to purchaser’s review of all leases/Ks/plans/surveys/state of title to lands…to be to sole satisfaction of
purchaser” (Kitsilano Enterprises).
 “Subject to financing at the discretion of the purchaser”.
 “Subject to environmental due diligence with full discretion”.
 “Subject to B arranging financing for acquisition of PR upon terms…satisfactory to Purchaser” (Kitsilano)
 Contrast with “Subject to purchaser being able to arrange satisfactory financing” (Griffin)  Mixed condition.

Effect  PSA unenforceable: the effect of a truly subjective condition is that there is no actual agreement. This is
because the necessary portion of making a contract, “intention of contractual intent” is missing. The parties have shown no
commitment and haven’t promised to do anything.

Case Law Principles on Subjective Conditions

1. If there is an exchange of non-refundable valuable consideration, then you convert the PSA into an option.
a. Options are binding agreements – one party is bound to do something if the other party exercises the option.
In practice, there will be a consideration clause in all P&S agreements, which will change an agreement with
a subjective condition into an option (a binding agreement) that is effective and gives the purchaser the
power to call to buy.
2. Even if there is no non-refundable consideration, a court may consider that document to in actuality be an offer  an
un-accepted offer.
a. Here, the vendor said I will sell you this land at a certain price and if you are satisfied as a purchaser, I am
committed to sell it to you. In this scenario, if the buyer waives the condition or it has fulfilled the condition
before the offer is withdrawn, then you have a binding agreement. (Doesn’t come up a lot because
consideration clauses are in almost all PS agreements).
3. Waiver  Acceptance:
a. May become accepted offer later if party waives condition or it’s fulfilled before offer withdrawn, will have
binding agreement. (Kitsilano Enterprises)  Can only waive if it’s for benefit
4. No reasonableness requirement can be implied:
a. While a purchaser must use his best efforts in doing such things as obtaining financing, getting subdivision
approval, or selling own home, no way that law can test whether he used his best efforts in undertakings such
as deciding if he really like a particular piece of PR or not. In these cases, there can be no K in the first place.
(Kitsilano).

Option
A legally enforceable agreement conferring interest in land (registrable under LTA) which grants right to do something on
the happening of some event (e.g. the passage of time, a specific event). In the context of sale of land, can be conceived of
contract to keep an offer open for acceptance until specified time.
• Elements of Contract required: For option to be complete and enforceable, must have all the elements of a K
(above all else, consideration must be given from option-holder to the vendor).
• Separate consideration: There must be separate consideration for each component K of an option (option and
actual sale).
An option contains 2 contracts:
1. Option to purchase upon event: Once stipulated event occurs, option-holder had choice to purchase once event
occurs:
a. Places no enforceable obligation on option-holder to purchase a PR, but binds vendor not to sell the PR
to another party without first giving the option-holder the opportunity to say “yes” or “no” (right of first
refusal).
b. Conditions: What must be met prior to exercising the option. However, if too vague, courts may not
enforce
Exercising the option: Once option exercised, gives rise to enforceable contract of sale (consideration here is purchase
price).

3. Mixed Objective/Subjective Condition

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Just like a subjective condition, except the party’s discretion is limited by reasonableness. Examples:
 “Subject to purchaser satisfied with an inspection acting reasonably”.
 “Subject to environmental due diligence, limited by reasonableness”.
 “Subject to reasonable title due diligence”.
 “Subject to purchaser being able to arrange satisfactory financing” (Griffin).
 “Subject to purchaser approving engineering, soils, traffic reports” (Tau Holdings).

Effect  PSA enforceable: the effect is to suspend the obligations of the parties until the condition is waived or satisfied.
But the P&S agreement is enforceable because the court has a reasonable standard to determine if the condition can be
waived or fulfilled.

Case Law Principles on Mixed Conditions

1. Unless the P&S agreement makes it really clear the condition was meant to be purely subjective, the court is inclined
to interpret conditions as mixed conditions. There is an effort on the part of the courts to make these agreements
enforceable (Kitsilano).
2. Best efforts may be implied: condition imposes obligation on party to use best efforts to remove condition (Griffin),
and in exercising discretion, to act reasonably and not arbitrarily (Tau).

Magic Cheat Sheet on Conditions

Conditions fall onto a spectrum:

Subjective Mixed Subjective/Objective Objective

 Note that the analysis below only becomes relevant if the threshold enforceability requirements are met – i.e. certainty
as to Parties, Price, and Property.
 P&S agreements with mixed subjective/objective conditions will be found to be enforceable because there is a
“reasonableness” standard by which a court can determine whether a condition has been fulfilled.
 P&S agreements with either a subjective condition (e.g. in the purchaser’s sole discretion) or an objective true
condition precedent (e.g. obtaining development approval) that has yet to be fulfilled or waived will be found to be
unenforceable since the court:
o Has no “reasonableness” standard to determine if the subjective condition has been fulfilled;
o Cannot find that the objective true condition precedent has been fulfilled or waived if it has not actually
occurred.

The question this leads us to is how do we effectively use the different conditions precedent in the real world?
E.g. Purchase and sale of a commercial property containing existing warehouse land. There is a developer who wants to
buy it and build condos.

When we structure the agreement, what conditions will the PURCHASER likely require?
 Zoning Change: In any context, which was probably zoned industrial, there will probably be need for up-zoning as a
condition.
 Subject to financing – mixed.
 Environmental concerns and other due diligence.
 Inspection – mixed.
 Title report – mixed.
 3rd party conditions: e.g. I will buy your property but I need to deal with assembly of properties around you before this
becomes viable.
 Creation for necessary easements or rights of way.
 Specific aboriginal issues: e.g. band approvals and requirements to be met before development or transaction can
occur.
 As a lawyer, your role is to advise your client (the purchaser) to what conditions they will need in order to protect
themselves.

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When we structure the agreement, what conditions will the VENDOR likely require?
 Board approval (if it's a corporate vendor) – objective true condition, but you can also make it a mixed
objective/subjective by asking the board to ask reasonably in their decision.
 Restrictive covenants – controls over the use of the property (e.g. Soebys doesn't want the person buying the land to
start a competing business).
 Ensure the vendor has approval rights (i.e. to maintain the look and feel of the property).

In the real world, there are a lot of reasons why a party will want a condition to be unenforceable. It is a strategic choice on
the client’s part as to what type of condition you are using. The real trap is when lawyers misinterpret their clients’
instructions and put in a condition that they didn't intend. When would an unenforceable condition be advantageous?
 Vendor: the market price goes up and the vendor wants to keep looking for buyers.
 Purchaser: your inspection (you want to be able to look at it and say it doesn't work for me). For purchaser, as
long as the consideration clause is there – as long as it is an option, it’s to the purchaser’s advantage. If
everything is all at the purchaser’s discretion, then I can be sure before I pull the trigger. If it is an option, the
vendor can’t retract it. That's why vendors don't want to give this out (uncontrolled options – you want the
purchaser to act reasonably to determine whether or not they will purchase).
The conditions are going to determine whether a deal is struck or not, but also the economic result for your client.

Transaction Start to Finish

 Starts with an LOI: it is not binding
 Then enter a phase in which the parties will negotiate, draft and work out the Purchase and Sale agreement
which is your road map guiding the parties from the start of the transaction all the way to the close when the purchaser
gets title to the property.
 Conditional phase: Right when the purchase and sale agreement is executed, the deposit is paid. This
cements/binds the obligations of the parties. Typically, the vendor also provides all of the due diligence materials.
During this period, the obligations of the parties are typically suspended (aside from access, due diligence, etc.).
o There will be an objective condition – something that actually has to occur.
o Subjective condition – so many gaps of what the party has to do that if you tried to sue on it, the court
couldn't fill it in for you.
o Mixed condition – reasonable discretion is to be used.
 At the end of the conditional phase, the conditions are either removed or waived. At this point, the contract goes firm
and at that point, the second deposit is paid. Here, you typically have 30 days to draw all the document and then
there is a specific date of close.

STRUCTURE OF PARTIES

Beneficial Ownership
Split where there is a trustee owner who controls property for the benefit of a beneficiary owner.
• Commercial parties: Usually will place property in name of shell company. Instead of selling the land, will sell
shares of the company. Used typically by commercial parties to avoid PTT. S will ask B for higher sale price as share
of PTT savings. Key is that must be shell company – SH doesn’t want to incur liabilities of an operating company.
• Not typically used in residential settings because then can’t take advantage of capital gains holdings exemption.
• Confidentiality: May use this split to keep the true owner of the PR anonymous.
• Upon transfer: Must ensure that both legal and beneficial ownership are transferred.

Joint Venture
Owner of property doesn’t have sophistication to develop that property. A developer comes along and offers to enter a
joint venture, allowing original owner to participate in the development of the land. Joint venture agreement is created, the
owner is going to vend in the property and the developer is going to do all the heavy lifting (finance, market, sell).
Because of that, the developer gets 50-50 split on profit.
 Unless entities are closely related, they will typically go with this structure.

Potential traps for owner

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 Development entity takes care of construction, management, and marketing / sales, but they charge fees for all those
services to the joint venture entity. Basically, developer is going to make more money than the owner.
 This happens a lot with aboriginal land.

Partnerships
Two or more partners pool together resources to purchase and develop property. Act through general partner to limit
liability and have a general partnership agreement to detail relationship. Less common than joint ventures.

INTERIM PERIOD

The interim period is the portion of time after the P&S agreement is entered, but before closing. Generally, the deposit is
paid during this time. If there are conditions holding the contract in suspension, there may be two deposits.

Relationship between the parties

 Seller holds property as trustee.
o Once the PSA is signed, the seller becomes a trustee for the buyer in equity. Beneficial ownership passes to
the buyer, and what remains to the seller is the right to the purchase money, despite holding the property as
the legal owner (Lysagh).
 If the seller disappears, the. Buyer is entitled to transfer upon payment.
o PSA operates as alienation by seller of beneficial property interest. Once purchase price is paid, transfer can
be given to the buyer (Rich v Krause).
 Creditor of the seller has no claim against the property once beneficial ownership transfers to the buyer.
o Beneficial ownership transfers when PSA is formed if there is a specifically enforceable agreement (e.g.
property that you could order SP on), meaning that the seller’s creditors cannot attach their debts to the
property after this time (Martin v Virtanen).
 Court Order Enforcement Act s.86(3)(c): the lien and charge of a judgment creditor are subject to
the rights of a purchaser who, prior to the registration of the judgment, has acquired an interest in
land in good faith and for valuable consideration.

Allocation of Risk
Risk for property remains with the vendor (in standard form contract) until completion date. This reflects the trustee
relationship between the vendor and purchaser. If anything happens to the property before closing, the vendor is
responsible for the damage.

STANDARD FORM RISK CLAUSE

“All buildings on the PR and all other items included in 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”.
• Important for B not to alter this: At equity, courts held that beneficial ownership of PR passes to B when parties
enter binding KPS, so from date of binding KPS, any damage at B’s risk unless parties agree otherwise.
• Important for S to have active insurance policy at this time.

REPRESENTATIONS AND WARRANTIES

The purpose of representations and warranties in a contract is to apportion risk about the subject matter of the contract.

Representations
 A representation is something that speaks about a past or present status. Everything that has happened to the
property, up until the present moment.
 The law does not imply representations.
 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).

Consequence of misrepresentation
 If a representation is made but turns out to be wrong/false (= a misrepresentation), the innocent party’s remedy is

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 damages (looking backward) for negligent and innocent misrepresentations and rescission for fraudulent
misrepresentations.
 0759594 BC Ltd: depending on the language of a representation, the party making it can be liable for information that
it did not even know.

Examples
“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.”
 “…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.

Warranties
 A warranty is a statement that speaks about something that will or could happen in the future.
 The law may sometimes imply warranties. E.g. the law will imply the warranty that a property is for habitation if that
property has been recently constructed.

Breach of Warranty
If a warranty is made, but then breached, the innocent party can sue for damages (looking forward).

Examples
 “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.

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FINANCING

MORTGAGES

History of Mortgages
 Conveyance in land: Legal effect was conveyance of both title and possession to land to lender. Conveyance was
absolute, subject only to lender’s promise to reconvey PR to borrower if specified sum repaid by specified date
 Failure to repay on time at CL: View that mortgage had to be performed exactly to its terms. If borrower failed to
comply with termsLand became lender’s and borrower had no further claim to the PR, but was still liable for the
debt.
 Modification by courts of equity: Equity altered relationship of parties to mortgage K and available remedies. The
courts of equity recognized that ultimately, mortgage is only security for a loan.
o Lender does not have possession: Therefore, possession of land by lender no longer necessary, and
possession by lender only of value where borrower did not honor the K.
o Failure to pay on timeEquity of redemption: Doctrine of equity of redemption permits borrower to
repay debt and regain the PR even after the contractual date for repayment has passed. In order to
terminate B’s equitable right to redeem, lender would have to apply to court, and court would set a
redemption period during which borrower had to pay full amount owing. If borrower didn’t repay, he/she
would lose all interest in PR to lender, and lender would become owner in FS.

Modern Mortgage in BC
Mortgage is when a lender lends money based on a contract that places obligations on the borrower. A mortgage is a
form of security for a debt, and an instrument for securing other obligations. Registration of a mortgage provides a bank
with a great deal of security. Registration of mortgage creates a charge – an interest in land on the property. The very
core of the ability for a bank to realize on the mortgage is this security. Banks will lend a large portion simply because
their security is so firm and certain.

What Can Be Mortgaged?

 Fee simple ownership.
 Also, in certain transactions any estate or interest in land.
o Leasehold interest/leasehold financing.
o Second mortgages.
Rights of way mortgages (ex. BC Hydro puts up their rights of way as collateral for financing).

Standard Borrower Obligations

 Pay the principle sum owing: monthly payments and interest.
o Standard term for a mortgage is about 5 years after which you pay off the balance or refinance.
 Upkeep obligations: keep the property in a reasonable state of repair.
 Tax obligations: borrowers have an obligation to pay taxes (particularly real property taxes). This can be a super
priority lien that can lead to foreclosure and seizure of assets.
 Obligation for the borrower to insure the property (i.e. if property is burned, borrower is to ensure that it is
properly covered by insurance).
If the borrower doesn’t fulfill these obligations:
 Borrower can be sued in debt by the lender.
 Lender is going to start foreclosure proceedings in order to seize the property.

2 primary purposes for mortgage: 1) security for debt, 2) contractual promise to pay.

In BC, under the Torrens system, mortgages operate as charges against the owner / borrower’s title as opposed to a
conveyance in land to the lender. This concept is stated in s.231(1) LTA.
 Lender receives right to have legal title of property conveyed to it in the event of a default, subject to the equity of
redemption s.231(1).

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 Borrower remains owner of the property, and has the right to pay mortgage according to terms to remove the
charge, and to redeem the property should they default.

Equity of Redemption
The doctrine of equity of redemption permits the borrower to repay debt and regain their property even after the
contractual date for repayment has passed.
 Property interest. This is a property interest, an asset that the borrower owns which can be dealt with like property
(charged, sold, transferred).
o Subsequent dealings subject to mortgage. Because the borrower really only owns the equity of
redemption, all dealings with the property (e.g. sale, subsequent charges) will all be subject to the
mortgage.
 Redemption period. Typically, 6 months, but dependent on circumstances, and can be shortened by the court.
o During this period, the borrower can: 1) seek replacement financing, 2) transfer the mortgage to another
individual, 3) sell the property.
 If you sell, then the borrower is released from obligations (even if there is a shortfall the debtor is
released).
 If the lender does not accept that, then the borrower is still liable for the shortfall.
o Borrower still responsible for property: borrower still has possession and is responsible for maintenance
and other aspects.
 Cannot contract out. Parties cannot place a term in the contract which contracts the borrower out of their equity of
redemption s.231(2).
 Extinguishment. 1) lapse of time, 2) foreclosure, 3) judicially forced sale of land.
 “Once a mortgage, always a mortgage” (Courts of equity have adopted this). Principles that flow from this are:
o If a transaction is found to be a mortgage, then it must always be treated as a mortgage and nothing but a
mortgage.
o The court will look at the substance of the transaction, rather than the form.
o The mortgagee cannot stipulate for a collateral advantage which would make the interest on the loan
excessive.
o The mortgage cannot be made irredeemable – any condition or stipulation that clogs the equity of
redemption will be found unenforceable by the courts.
o However, the fact that the mortgage cannot be redeemable for a long time is not enough to make the
mortgage unenforceable.

Subsequent Mortgages
 First mortgage is considered a legal mortgage.
 Subsequent mortgages charge equity of redemption.
o Subsequent mortgages essentially charge the borrower’s equity of redemption. Essentially, “a mortgage to
redeem the right of the previous mortgage”. Accordingly, borrowers will find it increasingly difficult to
arrange subsequent mortgages, as each successive mortgage reduces the gap between the market value of
the property and the total amount secured against the land. These mortgages will usually be for smaller
amounts and have higher interest rates.
 Registrable, despite being an equitable mortgage and the wording in s.33 LTA.

LTA s.231 “EFFECT OF MORTGAGE”

(1): Mortgage charges estate/interest despite words of transfer  Act as security: A mortgage operates to charge
the estate or interest of the mortgagor to secure payment of the debt or performance of the obligation expressed in it,
whether or not the mortgage contains words of transfer or charge subject to a proviso for redemption.
 Can still be affected by words of conveyance: In BC, mortgage is charge of land, but mortgages can still act as a
transfer of title subject to the right of redemption. (North Vancouver v Carlisle)

(2) Can’t contract out of equity of redemption: Whether or not a mortgage contains words of transfer or charge
subject to a proviso for redemption, the mortgagor and mortgagee are entitled to all the legal and equitable rights and
remedies that would be available to them if the mortgagor had transferred the mortgagor' interest in the land to the

34
mortgagee, subject to a proviso for redemption.

The strange result is that a mortgage is a charge (meaning that it is no long actually a transfer of land) yet it retains all
the elements and protections that mortgages historically have had. Equity still sees a mortgage as a transfer of interest in
the land, but our statutory regime can’t see it that way (as it would mess up title).

What happens if a mortgage is seen as a transfer of title?

 Any subsequent action by the borrower (i.e. trying to convey or deal with title) would be void because they have
already transferred title.
 The other consequence is the joint title, where title automatically flows to the other party. If the mortgage was to
transfer, it would sever the joint tenancy because the mortgage is seen as a transfer to another entity.  Unintended
consequence of a mortgage that was seen to be a transfer.

LEGAL MORTGAGE

Legal Mortgage: Charges the legal estate of the borrower’s land. Lender receives right to have legal title of PR
conveyed to it in event of default, subject to equity of redemption (231(1) LTA), and the borrower remains the owner of
the PR, and has the right to pay mortgage according to terms to remove the charge, and to redeem the PR should they
default. These mortgages may be registered under the LTA.
 Nearly 99% of mortgages are legal mortgages.

Legal Mortgage has two aspects

1. Personal covenant by the borrower to do certain things (payments, perform upkeep, etc.).
2. Conveyance of the land to the lender.

Under the LTA, we have a Form B.

Form B is the instrument by which a bank secures its interest in the property (very standardized). Two parts (note s.225
LTA “Form of Mortgage” describes these parts):
1. Part 1:
a. Basic information including who the parties, legal description of the mortgage land, amounts owed, interest
rates, etc. This is essentially the registration document.
2. Part 2:
a. The actual terms of the mortgage – all the details of the transaction and the obligations of the borrower.
When it comes to these terms, there can be 3 types of terms:
b. Prescribed terms (s.227 LTA) – mortgage terms that are prescribed by the government (standardized
mortgage terms). Typically, a private lender will use these. Will be adopted by institutions by ticking a box
on Form B. These are very basic and should not be relied on.
c. Filed standard mortgage terms (s. 228 LTA) – all major institutions (HSBC/TD) will have their own
prescribed terms for the mortgages that will be registered. To ease the transaction, they will have a
registration number on Form B referring these standard mortgage terms that apply in each transaction. This
is a way for banks to streamline their transactions. Almost all institutional lenders have standards forms
that are filed in the LTO.
i. s.229 LTA “Receipt of Standard Mortgage terms by Mortgagor”: through this section, the
borrower has to receive a full copy of any filed standard terms. The lender will ask the
borrower to sign an acknowledgement that they have received it and they understand them. If they
fail to do that, then the prescribed mortgage term will be the applicable terms.
d. Express mortgage terms – for more specialized transactions where more detail is required. Terms that are
specific to the transaction that will be attached to Form B.
Both part 1 and 2 will form the contractual basis that will give rise to the mortgage and allow the financing to take place.

Types of Legal Mortgages

 Conventional Mortgages:
o Secure up to 75% of the value of the property (classic residential mortgage).
 High Ratio Mortgages:
o Secure up to 95% of the value of the property. These high ratio mortgages can exist because they are

35
 guaranteed by institutions like Canada Housing (government backed).
 Collateral Mortgages:
o Used to secure some other obligation - i.e. a promissory note or another type of debt obligation that the
borrower provides to the lender as the primary debt interest and as further security the lender has these
collateral mortgages. An example would be a business loan.
 Vendor Take-Back Mortgages:
o Granted by the vendor to the purchaser to finance a portion of the purchase price – financing flowing from
vendor to purchaser.

Essential Terms for Mortgage

 Granting provision: “Borrower grants and mortgages to the Bank absolutely the borrower’s interest to have and to
hold to and for the use of the Bank forever”.
o These are essential terms by which the borrower is granting and mortgaging land. If this provision is
absent, the contract may not be a mortgage.
 Redemption provision: “Mortgage will be void upon (a) payment to bank of principal amount of indebtedness up
to maximum amount, (e) observance and performance of all agreements, provisos, conditions herein contained”
o This is the primary reconveyance language. Mortgage terminated and void upon performance of all
obligations.
o Mortgage here secures not just payment, but other promises (upkeep, taxes, no other charges on title).

Notable Terms for Mortgage

 Contractual power of sale: “Lender has the right, upon default of the borrower, to sell the property” (may be
tempered by notice).
o There must be a way for borrowers to get out of this power of sale – REDEMPTION PERIOD.
 South West Marine Estates Ltd v Bank of BC: Virtually eliminated use of contractual power of sale in BC. As
general rule, courts will not permit sale to be made under contractual power of sale until expiry of 6-month
redemption period. Further, exercise requires some judicial oversight.

EQUITABLE MORTGAGES

Equitable Mortgage: A contract that creates an equitable charge on the property but does not pass legal estate in the
property. Accordingly, pursuant to s.33 LTA, these interests are not registrable in BC, with the exception of subsequent
mortgages.

Methods of Creation
1. Mortgage of equity of redemption: although borrower has granted a mortgage, he/she still retains the right to deal
with the mortgaged property. Subsequent mortgages on the property are mortgages of the borrower’s equity of
redemption. In other words, the lender holds the borrower’s equity of redemption as security. A borrower will find it
increasingly difficult to obtain subsequent mortgages, as each successive mortgage of the equity of redemption
reduces the gap between the market value of the property and the total amount secured against the land. For this
reason, subsequent mortgages are usually for smaller amounts at higher rates of interest than previous mortgages.
Registrable.
2. Deposit of Duplicate Certificate of Title (DCT): the FS owner of property which is free of financial charges may
apply to the registrar of the LTO for DCT pursuant to s.176 LTA. This document can be used to create an equitable
mortgage if the borrower hands over the DCT to the lender.
o Actual delivery and intention required: To be effective, actual delivery as well as intention of parties to
create a mortgage is necessary. If documentation accompanying duplicate certificate of title doesn’t clearly
express intention to create mortgage, court may determine that the deposit is merely for safekeeping, or to
ensure that the borrower doesn’t engage in subsequent dealings with the property (RBC v Mesa Estates).
▪ Indicia for intention: (1) Clear words of pledge, (2) Words of seizure, sale, forfeiture, (3)
Ascertainable debt.
▪ Purposes for taking out DCT: (1) Safekeeping, (2) Negative covenant, (3) Equitable mortgage.

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 o No presumption that possession of DCT = mortgage: In BC, no presumption that holding a DCT means
that the lender holds a mortgage (RBC v Mesa).
o No presumption that possession of DCT = authority to dispose: Possession of DCT in and of itself is
not indicative of the right to dispose of the instrument. If holder’s possession of DCT is ambiguous, equally
compatible with authority to dispose and another purpose (Bank of BC v Andrews)
o Issuance prevents dealings with land: If DCT issued and removed from LTO, registrar will not register,
(1) Transfer s.189 LTA, (2) Mortgage s.195 LTA, (3) LT lease, until DCT returned to office and
cancelled.
o Not registrable s.33 LTA: Equitable mortgage created by deposit of DCT or another instrument not
registrable.
3. Mortgage equitable or future interest: Agreement to grant a mortgage in the future is recognized as a present
equitable mortgage.
4. Unregistered Form B Mortgage: Where a mortgage contains essential terms and required aspects, but for
procedural reasons not registrable (e.g. didn’t attach Form B), and not unregistrable because prohibited, (e.g. deposit
of DCT), then this mortgage is recognized as an equitable mortgage. As precaution: Lender should file caveat to
protect its position until the document is in proper registrable form and registered on title.

Why equitable mortgage?

• Can give priority: Equitable mortgages, even if unregistered, can potentially take priority over registered interests
such that any subsequent dealings with land would be subject to the equitable mortgage (Yeulet v Matthews).
• Lands which do not allow registration of interests: Certain types of lands do not permit registration of mortgage
interests (e.g. YVR).
COMMON ELEMENTS / UNEXPRESSED TERMS OF THE MORTGAGE

1) Mortgage operates as a charge s.231(1) LTA: a mortgage operates to charge the estate or interest of the mortgagor
to secure payment of the debt or performance of the obligation expressed in it, whether or not the mortgage contains
words of transfer or charge subject to a proviso for redemption. Based on this, note the collateral advantage provision:
 (I think) Collateral advantage is a situation where a contracting party uses his stronger bargaining position to obtain
terms that are advantageous to them, often disproportionately so, over and above the benefits conferred by the
contract itself.
 Some collateral advantages will be acceptable as long as they are not unfair/unconscionable and as long as they are
not a penalty or a clog on the redemption. Examples: Participation interest in the business in addition to interest
(profit sharing); Bonuses.

2) Equity of redemption: see above.

3) Prohibition against clogging: a fundamental principle of mortgage law that the borrower cannot be prevented by the
terms of mortgage from eventually redeeming his/her property free from conditions contained in mortgage. The effect of
the principle is to render invalid any term in the mortgage which may prevent the borrower from being able to redeem
his/her legal title free and clear of all encumbrances upon repayment of loan. In other words, if borrower repays loan,
he/she must be able to regain title in the same state as it was at time of making mortgage.
• Where equity of redemption illusory  Term invalid: Where equity of redemption is illusory given the
circumstances, then court will grant relief by allowing redemption (Knightsbridge).
• Right of individual borrower to prepay s.10 Interest Act: In general, any right of prepayment is a contractual
matter. However, where criteria in provision are met, it is possible for borrower to tender prepayment.
o Requirements: (1) s.10(2): Borrower is an individual and not a corporation, (2) s.10(1): Mortgage
provides that it’s not payable for more than 5 years from date of mortgage.
o If requirements fulfilled: Possible at any time after expiry of 5 years from date of mortgage for
borrower to tender payment of all principal and interest outstanding, plus additional 3 months’ interest in
lieu of notice. After this tender, no further interest may be charged by lender
• Long mortgage term not necessarily clog: Mortgage with long redemption period not necessarily clog on equity

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 of redemption. If (1) Essential elements of mortgage observed, and (2) No oppressive or unconscionable terms 
Equity will not interfere (where s.10 Interest Act doesn’t apply) (Knightsbridge).
Factors:
o Nature of transaction: If this was commercial transaction, courts reluctant to interfere with freedom of
contract.
o Look to assets of borrower: Borrower here had valuable property and no other assets. Wanted reduction
in interest rate, and right to repay over long period of years.
o Amount borrowed: Where amount borrowed is large, long period more justifiable.
o Lifespan of borrower: Corporate borrower has perpetual existence, whereas old man will likely die soon
and never get his shit back.
• Situations that are NOT SEEN AS CLOGS: Banks have been allowed to take a right of first refusal – this is just a
right to match an offer, not a clog.
• Situations that ARE SEEN AS CLOGS: Option to purchase: if the bank has the ability to call for the property then
it is seen as a clog on equity.

IMPLIED COVENANTS ON MORTGAGES

Recall Form A: Act Column 1 and 2 (Land Transfer Form Act), this also applies to mortgages.

Land Transfer Form Act Part 3

• s.9: If mortgage contains words listed in Column 1 of schedule 6, and references the numbers, the mortgage to be
construed as if it contains words in column 2 of schedule 6 – forms in this part of the act only apply if the mortgage
expressly states it is made pursuant to the act.
o Schedule 6 outlines additional covenants that can be included in mortgage.
o Use of certain short form phrases imports an expanded meaning.
• s.10: Mortgage includes all buildings, reversions and estate.
o Includes all natural aspects of property.
o All profits yielded from property.
o All aspects of original crown grant.
o As a borrower, if you want to exclude something from the security the lender is taking, you must be
specific about what you want to exclude.
• s.11: Taxation of bills – consider skill and labour not length of document when determining charge for preparation
• s.12: Mortgage is binding as between parties even if it doesn’t satisfy terms in act

Property Law Act ss. 20-24

 s.21: When a vendor transfers land subject to a mortgage, the new owner is bound by that mortgage (the vendor’s
personal covenant does not bind the new owner b/c they were not a party to the original agreement).
o Allows a lender to take direct action against the purchaser/new owner for repayment of the mortgage.
 s.22: there is an implied covenant on the part of the new owner that they will make payments on the mortgage
and indemnify the old owner for payment of the principal.
 s.23: The old owner ceases to be liable on the personal covenant of the mortgage three months after the mortgage
term ends, unless the lender gives notice to the old owner to pay.
 s.24: If a lender approves the new owner of land subject to a mortgage, then the old owner is released from their
personal covenant under the mortgage.
o ss.23 and 24 only apply to residential properties (public policy helping consumers).

Statutory Regime (PROTECTIONS)

All of the statutory limitations are essentially implied terms into mortgages, because they cannot be violated. They are
there for consumer protection.

PROVINCIAL
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 with provincial statutes (except if there are major differences). Credit

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unions (incorporated under provincial statute) and private lenders must comply with provincial legislation.
1. Mortgage Brokers Act, Part 2
a. Purpose: consumer protection legislation – sets out disclosure requirements ensuring borrowers,
investors and lenders receive adequate info about mortgage transaction from mortgage brokers.
i. Broker must provide written info about mortgage transaction that is not misleading (includes
disclosure of various fees) s.17.1
ii. Broker has to disclose any direct/indirect interest they might acquire in transaction s.17.3-4
2. Business Practices and Consumer Protection Act, Part 5
a. Purpose: protects consumers from unconscionable practices in situations where credit is advanced
(includes mortgages), and mainly prevents non-disclosure of hidden costs/fees.
b. Disclosure Requirements:
i. Creditor has to give borrower clearly worded, easy to understand written disclosure statement
related to mortgage 2 business days before borrower’s obligations take effect (ss. 66(3), 67)
1. Can be waived by the borrower (s. 66(4))
2. Separate disclosures for multiple borrowers (s. 68)
ii. Information in a disclosure statement may be based on assumptions or estimates, if: (s. 69)
 (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.
iii. Presumption for more favorable provision if inconsistency between credit agreement and
disclosure statement (s. 70)
c. Prohibition of Unconscionable Acts:
i. Prohibits unconscionable acts by creditors/lenders against borrowers (s. 8)
1. Undue pressure s. 8(3)(a)
2. Situations where creditor takes advantage of borrower (i.e. physical or mental infirmity,
ignorance, literacy, age, inability to understand the character, nature or language of the
transaction) s. 8(3)(b)
3. No reasonable probability of full payment at the time the mortgage was entered into s.
8(3)(d)
4. Inequitable terms (harsh, adverse) of mortgage agreement s. 8(3)(e)
ii. Gives courts the power to review whether an unconscionable act has taken place (s. 8)
iii. Burden on creditor to prove unconscionable act DID NOT happen (s. 9(2))
iv. Court have power to deal w/unconscionable mortgage – courts can undo a transaction, require
lender to provide calculations, order repayment from either side, set aside the entire agreement,
suspend the rights and obligations of the parties (s. 10)

FEDERAL
Interest Act
(a) Term of mortgage – section 10: borrower has right to pay off mortgage (with three months interest) every 5 years (s.
10(1)), but this right only applies to individuals (not corporations or partnership) (s. 10(2)).
 Original mortgage w/term of 5 years (Year 1)
o The term is extended by agreement beyond the 5-year mark (renewal), but the date of the original
mortgage stays the same.
o 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 Potash v Royal Trust.
o At the 5-year mark, the borrower has the statutory right to pay off the mortgage (Year 5).
o 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 (Year 1)
o At the 5-year mark, the borrower has a statutory right to pay off the mortgage.
o If the borrower chooses not to exercise his statutory right 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.
o The borrower cannot repay before the 5-year mark.

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 o At the 5-year mark, the borrower has a statutory and contractual right to pay off the mortgage.

(b) Disclosure of true interest rate

Section 6
 The true interest rate (showing the principal amount and what the interest rate would be if calculated yearly or
half-yearly) MUST be disclosed before a payment is made.
o Failure to disclose = 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
a. Kilgoran Hotels Ltd v Samek - Court held that the payments in the mortgage contract in question were
not blended because they could be separated by simple calculation.
b. Ferland v Sunlife Insurance - 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.
c. Stipulated repayments: schedule of interest that applies to specific payments.

Section 7
True Interest Rate = Maximum Interest Rate
 The true interest 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 other provision,
calculation or stipulation in the mortgage, no greater interest rate than the true interest rate can be charged.

Section 8
Arrears
 Lenders cannot charge more (by way of penalty, fine, or an increased rate of interest) on arrears (arrears = in default
or haven’t paid by the expiry of the term) (Re Weirdale Investments) s. 8(1).
o What constitutes arrears?
 10% interest imposed if principal NOT paid on due date (i.e. borrower went into arrears) =
contravened s. 8(1) (Re Weirdale Investments).
 Increase from 18% to 24% interest one week before maturity of the loan did not contravene s. 8(1)
(Raintree).
 Interest increased from 12% to 24% one month prior to maturity date did not contravene s. 8(1)
(upheld Raintree) (Prenor Trust Co).
 Interest rate increase from 16.5% to 24% after date of maturity = contravened s. 8(1), against
Raintree. Court suggested increase in interest would not violate s. 8(1) if it had a legitimate
commercial purpose (Guinness).
 Agreeing to 1-year renewals at higher interest rate did not violate s. 8(1) (maybe legit commercial
purpose?) but administrative and renewal fees held to be in contravention to s. 8(1) (Equitable
Trust Company).
 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 s. 8(2).

Section 9
What Happens When Borrower Pays More than True Interest Rate
 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.

Criminal Code – Criminal Interest Rate (ss. 347, 347.1)

Criminal interest = effective annual interest exceeding 60% of the credit advanced to the borrower.

Annual Effective Rate = (Aggregate Credit/Time for Payment) x Aggregate interest rate

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• Aggregate interest = all fees, fines, interest, etc. paid
• Aggregate credit advanced = all you borrow or could borrow
• Time for repayment = term of the mortgage

1. It is an offence to enter into an agreement to receive interest at a criminal rate.

a. This offence should be construed narrowly, as per Garland.
b. Whether an agreement or arrangement for credit violates this provision should be determined as of the time
the transaction was entered into.
c. 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).
a. This offence should be construed broadly, as per Garland.
b. Whether an interest payment violates the provision should be determined as of the time when payment is
received.
c. 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).

Note: If it’s completely voluntary for a borrower to shorten time in which payment must be made, the interest cannot be
categorized as criminal. Interest rate for mortgage calculated over term of mortgage (Nelson).

FINANCE PROCESS

Enforcement of mortgage
Foreclosure
Mortgages are enforced through a foreclosure process whereby the lender can take the land as part of its enforcement.
 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).
o During the redemption period, if the borrower retains the right to sell property, they can accept any offer
for the property so long as the purchase price covers the amount they owe to the lender.
 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 (gets conduct of sale) 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)
 If the purchase is approved, the mortgage on the property is discharged. However, the borrower in
default may still owe money to the lender if the sale price does not cover the amount owing.
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).

Priorities
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.

41
 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.

Statutory Priorities
 Builder’s Lien Act
o Provides lien over property for unpaid fees for contractors and that lien can be registered.
 Consequence: Although lender registered mortgage on a property prior to a builder’s lien being
registered, if that lender makes any advance on that mortgage after a lien is registered, that
advance is subsequent in priority to that lien claim.
o Banks will do title searches over a property before advancing money on property’s mortgage to search for
registered liens.
 Court Order Enforcement Act
o Permits judgments to register against property of the judgment debtor.
o Issue with this – if there are multiple judgments that get registered against the same property, the act says
judgement share rateability together (i.e. one does not rank over the other).
 The priority of payment should be as follows: Hanken
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.
 Unless you can get people to agree in above situation how to get the money sorted out, you’re
going to have to get a court order.
 Property Law Act
o s.28: if there is a registered mortgage, it takes priority, EXCEPT if there is another mortgage and first
mortgage needs to make another advance, then it needs to have another agreement w/ second mortgage to
make sure the advance gets first priority.
 Strata Property Act
o Allows strata corporations to file liens for unpaid strata fees or fines – super priority over registered
charges (i.e. a registered mortgage).
 Employment Standards Act
o Permits for a lien against property of employers for unpaid wages of employees.
o Enforce that lien by going to court for a certification and registering that against title.
 Even before its registered, there is a lien on the property.
 Workers Compensation Act
o Collects fees from employers, if left unpaid, forms lien on property of employer even if unregistered.
 Family Law Act
o Permits spouses who are not on title to register a claim against the title of a spouse who is on title,
particularly for the family home.
 Tax Liens - Every Tax Statute that Exists
o Acts create a lien on the property of the party who is liable to pay that tax.
 GST liens get priority over other encumbrances.
 Leases for less than 3 years
o Creates a lien/encumbrance against title that affects everyone who has an interest in property, despite it not
being registered (doesn’t actually need to be registered).
o Good Year: mortgage and lease of property, if lease was put on property before the mortgage, and
mortgage gets enforced, tenant could walk away with no liability.
 Reasoning = identity of the owner is changing, and tenant has no privity with that new owner.

Assignment of Mortgages
If someone has a mortgage on their title and they sell that property, everything that we have talked about until now
suggests that they have to get a discharge. But there is an ability to transfer property without clearing title. This can

42
happen when the contract allows mortgage to stay on title (maybe it is advantageous for the purchaser to assume the
mortgage if mortgage rates have shot up).

Property Law Act ss.21-24 deals with this

s.20: buyer is bound by mortgage:

When the seller transfers land subject to mortgage, buyer/new owner is bound by that mortgage (though buyer is not
bound by seller’s contractual promise to pay). Lender can take direct action against buyer for repayment.

s.21(1): transfer of fee simple  buyer must indemnify seller:

In the instrument transferring estate in FS in land subject to mortgage or agreement for sale  Unless otherwise agreed
in writing, there is an implied covenant between transferee (B) and transferor (S) to make payments under the mortgage
in accordance with its terms, and to indemnify the transferor (S) against liability to pay principal sum, interest, any other
money secured and liability on any express or implied covenants of mortgagor or purchaser.
• s.21(2) doesn’t apply if B assuming for nothing: S gets no indemnity if the amount secured by mortgage not
credited to transferee (B) in calculating purchase price, or transfer was basically a gift.

s.22: direct action against current owner:

Says that if the land is subject to a mortgage that is sold, the current RO is liable to the lender for fulfillments of the
mortgage covenants. EVEN if the bank doesn't agree to transfer an assumption of mortgage, statutorily the purchaser is
liable. (This is protection for the bank/lender because they do not control every transfer that happens)

s.23: transfer of residential fee simple  extinguishment of seller’s personal covenant:

Despite 21(1) this section deals with the transfer of fee simple that is subject to a mortgage but is a RESIDENTIAL
PROPERTY. Extinguishes the personal covenant of the vendor of residential property that is subject to a mortgage
UNLESS the lender gives notice to the vendor that they continue to be liable. This notice has to come within 3 months
of the expiry of the reginal term of the mortgage.
 Ex. If the term of the mortgage is 5 years and in year 2 you sell your residential property, the mortgage expires at
the end of 5 years, and no one does anything, and then 3 months later the vendor is free from personal covenant
(though the purchaser is still on the hook because the mortgage is still on title).
 This would be rare. It is to protect consumers in residential transfers.

s.24: lender approval  extinguishment of residential seller’s personal covenant:

If there is property transferred that is RESIDENTIAL and subject to a mortgage, if the BANK APPROVES the
purchaser as their debtor, then the vendor is released from their personal covenant.
• Advantage for the vendor is that, without this section, if there wasn't a contractual provision in the assumption
agreement that said that the vendor was released, they wouldn't be (most banks won’t give a release so we have
this in statute).

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TITLE DEFAULTS

Overarching title obligation

Both the buyer and the seller need to be ready, willing, able to complete and fulfill obligations on closing day. The seller
needs to be in a position to convey title as agreed. In a residential transaction using the standard PSA, the title clause states
that title must be “free and clear of all encumbrances except subsisting conditions, provisos, restrictions, exceptions, and
reservations in original Crown grant”.

Buyer/purchaser obligations: Need to be able to pay the purchase price as agreed.

 In BC, more obligations:
o B is the one who drafts all the conveyancing/closing documents.
o B bears the cost of conveyance.
o These obligations are confirmed by case law (Shaw v Greenland) and s.15 of the Standard Form
Residential Purchase and Sale Agreement.

VENDOR’S OBLIGATIONS

Seller/vendor obligations:
• TEST: Can S convey substantially what is required by the contract? No repudiation of contract for encumbrances
which are merely minor and insubstantial (Ferreira v Chen).
• Minor and insubstantial: Minor encumbrances with no restrictive effect on enjoyment and use of PRWon’t be
seen as title default on part of S (Re Hughes: B says S failed primary title obligation to convey clear title because
undisclosed sewer easement in favor of Vancouver. “Rescission not available to B if portion of land affected by want
of title comparatively trifling” (i.e. area affected was minimal)No rescission granted).
o Whether it affect use and enjoyment:
▪ Undisclosed sewer easement doesn’t affect normal use and enjoyment  Recession not available
(Re Hughes)
▪ Undisclosed restriction on building height substantial Rescission granted (Ferreira v Chen)
o Size of encumbrance: Rescission not available to B if portion of land affected by want of title comparatively
trifling (Re Hughes).
o Type of charge: Financial charges (mortgages) are higher order charges, making them more significant
(Campbell v Frolek: Empty, but undischarged mortgageDefault on part of S).

SUMMARY (expanded below):

(a) S. 185 Land Title Act: 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 s. 4 of Property Law Act.

(b) S. 6 Property Law Act: Vendor must have their own title registered before transferring title to the purchaser.
a. Means that title must be in the vendor’s name, not in the name of a shell company (Caplan v Coles).

(c) S. 7 Property Law Act: adequately “describe the parcel of land intended to be transferred”.
a. Providing the property’s legal description to the purchaser.

(d) S. 186 Land Title Act: subject to implied covenant they will deliver title to P free from all encumbrances.
a. Encumbrances that have a restrictive effect on the normal use and enjoyment of the property will result in
title default (Re Hughes, confirmed in Ferria v Chen).
i. i.e. covenant that restricts building height = title default (Ferria v Chen).
ii. i.e. sewage easement in favor of municipality w/no restrictive effective on normal use and
enjoyment of property = NO title default (Re Hughes).
b. A financial encumbrance, even if it is an empty mortgage (already paid out; no obligation behind it)
(Campbell v Frolic).

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(1) Property Law Act: Valid Title and Registration
• s.4: vendor to deliver registrable instrument (FORM A):
o Person making agreement for sale of land, if purchase price payable by installments or at future time, must
deliver to B instrument in form executed by parties that allows title of purchaser under instrument to be
registrable under LTA.
• s.5(1): fee simple transferor to deliver registrable instrument:
o Person transferring land in FS must deliver to transfer registrable under LTA.
• s.6(1): vendor / transferor must register own title:
o Person who makes agreement for sale of land by which purchase price payable by installments or at future
time  Must register his/her own title in order that a person to whom all or part of the land is transferred and
person claiming under agreement can register their instrument under LTA.
 (2) S who doesn’t have title in own name  screwed: Action must not be brought on agreement
or assignment in (1) by person who fails to comply with this section.
 S’s failure to change title from Company’s name to his name = title default  Rescission due
to title default: B has right to demand a conveyance from the S, and to refuse a conveyance from a
3P. So S under the obligation to have title in their own names so they can complete the conveyance
(Caplan)  S not RWA.
• s.7(2): transferor to provide registrable description:
o Transferor must describe the parcel of land intended to be transferred or otherwise dealt with, so that title to
parcel registrable under LTA (accurate legal description: PID)

(2) Form A Transfer Implied Covenants Land Title Act S.186 sets out the implied covenants to Form A as set out in
the LTFA.  Principle effect of that is that Form A is sufficient for transfer of the freehold estate as long as there is
valuable consideration s.186(4).
• (4) No need for words of transfer: Transfer of freehold for valuable consideration using Form A will transfer the
estate whether or not it contains express words of transfer.

(3) Risk & Damage to Property:

• STANDARD FORM s.16: “All buildings on the PR and all other items included in 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 PR and all included
items will be at the risk of the BUYER”.
o Important not to alter this: At equity, courts held that beneficial ownership of PR passes to B when parties
enter binding PSA, so from date of binding KPS, any damage at B’s risk unless parties agree otherwise
• Commercial contract: Will usually qualify risk. E.g. In the case of damage, if risk exceeds certain amount  B will
either terminate or take insurance proceeds from S.

(4) Patent / latent defects: duty to disclose latent defects prior to PSA
• Patent: Facts that are visible to the eye or are necessarily implied by facts visible to the eye and which the purchaser
should have discovered by reasonably careful inspection of the property.
o Principle of caveat emptor applies here, S not bound to call attention to these defects, and B usually must
bear the risk of these patent defects (Gronau).
• Latent: Facts which are (1) Unknown to purchaser and so crucial to enjoyment of property that purchaser might not
have entered into contract had he/she known they existed, and (2) Cannot be discovered upon reasonable inspection of
property  Prior to entering contract, seller required to disclose any latent defects that they know of. If seller is aware
of them and actively makes efforts to conceal them, then caveat emptor will not apply and buyer can sue for rescission
or damages.
o 5-13 RECR: disclosure of material defect: S must disclose all material latent defects, defined as defects
that can’t be discerned through reasonable inspection of PR, includes dangerous defects, defects making PR
unfit for habitation, defects that make PR unfit for purpose B is acquiring it if S knows that purpose, defects
that cost a lot to remedy, lack of appropriate municipal building and other permits
o BEFORE MERGER: Active Concealment  Rescission or damages:
 Patent: “Active concealment by S of defects which would otherwise be patent is treated as
fraudulent, and K is voidable by B if he has been deceived thereby” (Gronau).

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 MISREPRESENTATION

False statement of fact usually made in negotiations before the contract is made. Misrepresentation may be included as a
term of the contract itself but doesn’t need to be.
1. False: Statement must be false.
2. Actual inducement: Statement must have induced other party to enter the contract.
3. Reasonable inducement: Statement must be one which would have induced reasonable person to enter the K.

Real estate transaction representations

• Commercial contract: PSA will have representation section where seller will set out representations regarding
condition of property, title, leases.  Highly negotiated: buyer will want seller to represent everything, seller will
want “as is” sale and qualify all representations with “to seller’s knowledge”.
• Residential contract: In BC, it is in the buyer’s interest to incorporate a Property Disclosure Statement (PDS) into
the standard PSA. Note that the PDS has to be actively incorporated in the contract by a clause saying something
along those lines. By making a PDS part of the standard PSA, the buyer can treat the statements in the PDS as
warranties, the breach of which enables the buyer (by virtue of clause 18 of PSA) to disregard doctrine of merger and
sue for damages. Without this, buyer can’t sue seller for inaccuracies in PDS after merger unless buyer can fit claims
within one of exceptions to merger.

Representation clauses
• Clause 18 PSA (entire agreement clause): “There are no representations, warranties, guarantees, promises or
agreements other than those set out in this K and the representations contained in the PDS if incorporated into and
forming part of this K, all of which will survive completion of the sale.”
o The PURPOSE is to limit the exposure of the vendor to what is contained in the agreement.
o In both residential and commercial contracts  Commercial contract: survival length highly negotiable:
buyer will want long, or better yet, indefinite survival of representations, and seller will want expiry (usually
2 years).
o Nothing outside the agreement counts unless there is real and probative value to evidence or agreements that
assists the courts in interpreting an ambiguous part of the contract  if contract not ambiguous, other
evidence is useless.
 UNLESS: What if there is a collateral agreement? Recall s.59 – there may be other agreements
that would affect the contract (written or unwritten). If they fit within the parameters of s.59, there is
usually some fairness issue that allows courts to give rise to allowing the collateral contract.

Remedies for misrepresentation depends on the type of misrepresentation

Innocent misrepresentation
False statement made by representor without knowledge of its falsehood. If the misrepresentation is due to a misbelief (an
innocent misrepresentation/product of negligence) the court will award DAMAGES (this is in most cases), but if it goes to
a fundamental term then there is the possibility of RESCISSION.
• Breach before merger  Rescission, not damages: If representation was innocent, P could obtain rescission, but
cannot obtain damages. Note that the P can claim damages under N misrepresentation (Kingu) Misrepresentation can
give rise to rescission IF: (Kingu):
o The misrepresentation is made about an EXISTING fact (not a future fact).
o The misrepresentation is made with the intention that the other party would act on it.
o The misrepresentation induces the contract.
o No innocent third parties have acquired rights to the property.
o The innocent party has acted promptly in making a claim to disaffirm the contract.
o It is possible to restore the parties to their original position.
• Minor breach after merger  Nothing: Representation which isn’t fraudulent and doesn’t amount to EIS after
completion could only operate as creating contractual condition or warranty (Hyrsky).

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• Error in substantialibus (EIS) after merger  Rescission: Mutual fundamental mistake as to the quality of the
subject-matter (Hyrsky). “Where misdirection, although not proceeding from fraud, is in a material and substantial
point, so far affecting the subject matter of the K that it may be reasonably supposed that, if not for misdirection, B
might not have entered into contract” (Gronau).
TEST: If the thing lacks an identifying quality, then it’s a fundamental mistake. Ask parties what subject matter of K
was. If, in spite of mistake, parties give correct answer, then contract valid at law (Hyrsky).
o Foundational crack: K for building in excellent condition, and building had foundational crack from
basement to ceilingEIS (Gronau)
o Quantity: If mistake as to quantity so substantial that in essence changes quality of subject matter, proper
case for rescission may exist (Hyrsky: ½ the land did not belong to the S, and S knew that B bought for
investment purposesEIS, rescission granted. Important here that no “more or less” qualifier of quantity in
K. While there was no evidence of fraud, there was a total failure of consideration).

Negligent misrepresentation  damages

Where a DOC exists between the parties, and the D fell below the required standard.
o False statement negligently made
o DOC on person making statement to recipient: (Queen v Cognos).
 Person making statement possessed of special skill or knowledge on matter in Q
 Circumstances establish that RP making statement would know recipient relying on skill/judgment
 Reasonable reliance on statement by recipient
 Loss suffered as consequence of reliance

Fraudulent misrepresentation
Occurs when representor has knowledge that the statement is false or says it recklessly without care whether the
statement is true or false (absence of honest belief).
(Onus on party alleging fraud – high standard Roberts v Montex).
• Breach before merger  Rescission or damages: Court typically will award damages, but if fraud fundamental and
goes to root of K, court will allow rescission
o Foundational crack: K for building in excellent condition, and building had foundational crack from
basement to ceiling  EIS (Gronau).
• Breach after merger  Rescission or damages: Court typically will award damages, but if fraud fundamental and
goes to root of K, court will allow rescission

Fraudulent
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).
What is it? Onus is on the party alleging
fraud to prove the fraud (high
standard!).
In some cases, failure to
disclose will also amount to
fraudulent misrepresentation
(Allen v McCuthcheon).
Purchaser’ Courts will award rescission if
s remedy fraudulent misrepresentation
Negligent
Innocent Misrepresentation
Misrepresentation
A false representation A representation made innocently that
made negligently. turns out to be false.
0759594 B.C. Ltd. v. 568295 B.C. Ltd:
 If you have a full disclosure clause in
the contract, have to add a
knowledge qualifier
 If you don’t draft clearly, a court will
read in a warranty to a vendor, even
if it’s for unknown information
e.g. representation that condo was
designed to provide maximum sound-
proofing between homes (Montex
Developments v Roberts).
e.g. innocent mistake as to the quantity of
the land conveyed (Hyrsky).
Courts will award Courts will typically only award damages
rescission if negligent for innocent misrepresentations.

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 relates to a fundamental term misrepresentation relates Rescission may also be awarded, but only
of the agreement. to a fundamental term of if the innocent misrepresentation is
Fraudulent misrepresentation is the agreement. discovered before completion (doctrine of
an exception to the doctrine of Otherwise, courts will merger); exception is where innocent
merger (Redican v Nesbitt). award damages to the misrepresentation amounts to error in
This means that an innocent purchaser. substantialibus, in which case a court
party may be awarded may award rescission, even if the
rescission, even if fraudulent innocent misrepresentation was
misrepresentation is not discovered after completion (Redican v
discovered until after closing. Nesbitt).
Otherwise, courts will award e.g. in Roberts, purchaser wanted
damages to the purchaser. rescission but court found sound-proofing
misrepresentation did not go to the root of
the contract, so only damages.
e.g. in Hyrsky, court awarded the
purchaser rescission because 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.

Knowledge qualifiers
As in the case of innocent misrepresentation and EIS, it’s possible for a party making the representation to be liable for
information that it wasn’t aware of at the time when making representation. Therefore, it’s important to draft a knowledge
qualifier in explicit and unambiguous terms (full disclosure clause).
 “So far as the vendor is aware”  Not Ambiguous: the clause as drafted was a warranty that reads that the S said
they are going to disclose all material facts including the things that they did not know about.

TIME OF THE ESSENCE

“Time of the essence” means that there must be strict adherence by the parties to the specified time for performance
(Norfolk). 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. S.31 of the Law and Equity Act provides that equity will step in to
provide relief to time requirements unless otherwise stated and wording is necessary. If you are not ready, willing and
able to complete, you cannot rely on “time of the essence” – have to do your part first (Norfolk). If both sides are not
ready, the P&S agreement doesn’t die, but either party can set a new reasonable closing date to restore “time of the
essence” (Norfolk).
 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.
o The innocent party must act promptly and communicate to the other side whether they would like to
terminate or affirm the contract (A&G Investments).
o If a purchaser fails to adhere to “time of the essence”, the vendor may terminate the contract.
o If the vendor elects to terminate, the purchaser’s deposit is “absolutely forfeited” to the vendor.
o If time is of the essence, the minute you miss the deadline for closing, the contract is dead.

Summary
1. It means what we think – time references must be strictly adhered to and the failure to adhere to this is a

48
 fundamental breach, and that failure can be treated as repudiation of the contract.
a. Recall s.31 Law and Equity Act specific wording is necessary, otherwise equity will provide relief.
2. Time is of the Essence can be waived in a number of ways: (1) Agreement from both parties (express or implied),
(2) Unjust or inequitable to enforce, (3) Innocent party may waive if other side not ready, (4) neither parties are ready.
a. Agreement:
i. Neither party RWA  waiver  reasonable time: When neither party is ready to close on
closing date, this does not put an end to the K. In this situation, “time of the essence clause” no
longer in effect. One party can’t rely in time clause to terminate if he wasn’t RWA himself
(Norfolk).
b. Unjust / inequitable: “If circumstances make it unjust or inequitable for a party to insist that time is of the
essence, the court may refuse to give effect to that provision in an agreement.” (Salama).
i. Time Breached for Mutual Benefit: “Where in written K it appears that both parties have agreed
that something shall be done, which can’t be done unless both concur in doing it, the construction of
the K is that each agrees to do all that is necessary on his part to carry it out” (Salama: Subdivision
for mutual benefit: S would retain a parcel, and needed subdivision for registrable conveyance. K
itself made it clear that responsibility solely on B for mutual benefit)
ii. Time Clause Initially Waived for Benefit of Party Now Invoking It (Salama: S agreed to mod
original K to result in savings to Bs, without benefit for selves, executed all documents, necessary,
and only through fault of 3P that not on time. B used later delivery as reason to terminate when in
reality not interested in purchase)
c. Innocent party behaves as though the contract is alive: Communication of termination must be prompt
(A&G Investments).
3. If you’re going to set a new date and you want time of the essence to apply, you have to be specific with your
wording  must reinstate the time of the essence provision (Ambassador).
a. Reasonable notice: One party can’t unilaterally make time again of essence by setting new date for
performance, without giving express notice that if new date not met, party serving notice will treat K as at
end (Ambassador).
i. Setting new date in and of itself not sufficient: Setting new date without explicitly making time of
essence is not sufficient notice (Ambassador).
ii. “All terms and conditions to remain the same” not sufficient: Reinstatement of time clause must
be explicit and unambiguous (Ambassador).
iii. Notice must contain setting of new time: Even though setting time itself not sufficient, court in
Shaw found a letter and documents to be insufficient notice because said nothing about fixing new
date or time for completion
b. Reasonable date: In order to reinstate the time clause, a party must give reasonable notice and fix a new
reasonable date for closing, stating that time is to be of the essence with respect to the new date (Norfolk).
4. What happens in the event of a breach (i.e. if not RWA)
a. Communication of termination must be prompt (A & G Investments) – in the context of a breach of a
condition precedent: If there is a fundamental breach because of the inability of the other party to complete
on the closing date in the face of a time of the essence clause, then the innocent party has to act promptly and
communicate its election to either terminate or affirm the contract to the other party – you can’t wait and see.
b. One party RWA, other party not  breach: If the K contains a time is of the essence clause, and one
party is RWA but other party is notOther party in breach (Norfolk).
5. If you are not RWA to complete on the PSA, then you can’t rely on the TOE clause to argue that the other side
has repudiated (you have to do your part first before you can rely on that type of a clause) (Norfolk).
6. The PSA doesn’t die if both sides aren’t ready; instead either party can set a new reasonable date and restore time of
the essence (Norfolk).

TITLE INSURANCE

Title insurance insures owners against financial loss from defects in title to real property and from the invalidity of
unenforceability of mortgage loans. Product used quite extensively in other jurisdictions (ex. Ontario- don't have a
complete Torrens System, AB, US) In BC, we do have a complete Torrens System so the value added by title insurance is
questionable, but overtime it is making its way into BC.

49
• Residential context: it is something that is requested by the bank to offset risk. Banks are big on offsetting risk- if
they are going to be able to do that as mortgage lenders by getting title insurance than they will do that.
• Commercial context: it’s still not used quite as much (mostly because it can be very costly because they charge a
percentage of the purchaser price).
o But, requested by purchaser from jurisdictions where it is common practice (ex. US buyers).

There are both owner and lender policies

• Owner’s Perspective: they are insuring against losses such as defaults in title stemming from forgery and
encroachments (from lands adjoining and over your own lands), and unmarketable title.
o The title insurers require you to do a lot of due diligence before insuring you – ex. Provide them with a
survey if ensuring for encroachments.
• Lender’s perspective – primarily for the enforceability of their mortgage. Lender gets a guarantee from the insurer
that the mortgage is going to have the priority they expect and be enforceable.
o But the lender could rely on title anyway – but banks want to offset risks.

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COLLAPSING TRANSACTIONS
What happens when a transaction goes bad, and what you need to worry about / what your options are.

TENDER

Tender is the action of delivering all of the documents, money, whatever you are supposed to deliver under the contract.
This happens at closing or completing. The contract sets out when, how, and on whom it is supposed to happen.
 If time is of the essence, tender must be strictly complied with.
 Who you tender on must also be strictly complied with (Norfolk).

Tender is significant because it is a threshold issue for some of the remedies that you may claim if you are the non-
defaulting party.
 The act of tendering is the best evidence available that you as a party are “ready, willing, and able” (Norfolk).
 Tendering affirms the contract: the act of tendering is also an indication that the party that is tendering considers that
the agreement is alive and effective. This is an act that would be inconsistent with terminating the agreement.

Common Issues

Vendor Clearing Title

In the absence of an undertaking, a clause that says “seller to furnish clear title” means that in order to tender title, the
party must have clear title on the closing date.

Preparation of Documents / Cost of Conveyance

 Clause 15: “buyer will bear all the costs of the conveyance and, if applicable, any costs related to arranging a
mortgage … and the seller will bear all costs of clearing title”.
 Where the costs of conveyance are to be borne by the buyer, the buyer must prepare the transfer, and the vendor must
be ready to execute (Shaw v Greenland).
o If land in name of vendor  buyer prepares the transfer, vendor must be ready to execute it.
o If land not in name of vendor  rule above does not apply. If vendor must acquire title, vendor must
prepare necessary transfer documents.

Frustration
Where frustration occurs, both parties are discharged from further performance of the contract (BC v Cressey):
1. What, having regard to all the circumstances, was the foundation of the contract?
2. Was the performance of the contract prevented?
3. Was the event which prevented performance of the contract of such a character that it cannot reasonably be said to
have been in contemplation of the parties at the time of the contract?

Property Law Act s.5

Statutory responsibility of the vendor  any transferor of property in fee simple has to give the transferee a registrable
instrument that conveys that title.
 Because of this statutory duty, it is not an excuse for the vendor to say that the purchaser did not comply with the
contract. This does not satisfy the vendor obligation they have under the PLA.
 Even if the purchaser doesn’t produce any documents or won’t close, the vendor should still have a transfer prepared
to tender to the purchaser. This shows the vendor is RWA to provide them with a signed transfer.
 Then, your hands are clean. Contractual and statutory obligations would be fulfilled as a vendor.

Property Law Act s.6

You have to get title to transfer it.
 This provision is interpreted to mean: if you have a large parcel that is intended to be subdivided into 5 lots, if you
have not yet subdivided it, you don’t have proper title to those 5 lots.
 You can’t force a purchaser to complete the deal because you don’t have proper title and thus are not RWA.

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 REMEDIES

Repudiation
Rejection, refusal, or denial to perform a contractual obligation. Whenever a breach of a party’s obligations under the
contract, whether actual or anticipatory, the party is said to have repudiated the contract. The innocent party can only treat
the breach as a repudiation if the party himself was RWA at the material time.

Innocent party has 3 choices:

1. Accept the repudiation and terminate the contract. Both parties relieved of further obligations.
a. Buyer can accept vendor’s repudiation, terminate the contract, and ask for return of deposit.
b. Seller can accept buyer’s repudiation, terminate the contract, and ask for forfeiture of deposit.
2. Accept repudiation, terminate the contract, and sue for damages. Both parties relieved of future obligations.
3. Specific performance.
a. Reject the repudiation, declare the contract continues, and ask for performance of the other party’s
obligations and/or damages.

Specific Performance
An equitable remedy granted at the discretion of the court. Specific performance means that the court will order the terms
of the contract to be performed and will generally not be exercised when damages are considered to be an adequate
remedy.
 Act fast: equity rewards only the vigilant.
 Election must be clear: equity requires the claimant to clearly state, unconditionally, what they want the performance
of.
 Act as though contract is alive: cannot do anything inconsistent with a living contract.
 Clean hands: an individual that has at all material times been, and is now, RWA to perform. Tender must be perfect.

Threshold issue when asking for SP: were the parties ready willing and able? (best show this with evidence of tender).
 Specific performance is not an exclusive remedy. You can ask for it in combination with, or as an alternative, to
damages. Even if you get an order for specific performance, you may have suffered other damages along the way.

RESULT from Semelhago and Southcott:

 There is a limit on your right to SP (unique requirement) (Semelhago, affirmed in Southcott).
 There is also a limit on your claim to damages (duty to mitigate) Southcott.

1) REQUIREMENTS: Specific performance not readily available in real estate transaction

Where at one time the CL regarded every piece of real estate to be unique, with progress of modern real estate
development, this is no longer the case. Both residential, business, and industrial properties are mass produced much in the
same way as other consumer products. If a deal falls through for one property, another is frequently readily available.
 1) Damages can’t compensate.
o SP will be available only where money cannot compensate fully for the loss, because of some peculiar and
special value of the land to the purchaser (Semelhago).
 2) Unique quality to the property.
o “specific performance should not be granted as a matter of course absent evidence that the property is unique
to the extent that it’s substitute would not be readily available”.
o Test: before a party can rely on a claim to SP so as to insulate himself from the consequences of failing to
procure alternate property in mitigation of his losses, some fair, real, and substantial justification for his
claim to performance must be found (Semelhago).

2) Innocent party must MITIGATE their losses

Idea of damages is compensation for pecuniary loss naturally flowing from breach. But “the plaintiff has the duty of taking
all reasonable steps to mitigate the loss consequent on the breach and debars him from claiming any part of the damage
which is due to his neglect to take such steps”. Losses that could reasonably have been avoided are, in effect, caused by

52
the plaintiff’s inaction, rather than the defendant’s wrong (Southcott).
 General rule
o Plaintiff will not be able to recover for those losses which he could have avoided by taking reasonable steps.
Unreasonable failure to mitigate loss reduces damages to the extent that mitigation would have avoided the
loss (Southcott).
 Burden of proof on party alleging failure to mitigate
o Where it is alleged that one party failed to mitigate, the burden of proof is on the other party, who needs to
prove that (Southcott):
o 1) mitigation was possible: if single-purpose corporation, can look to see whether parent company continues
to make purchases, look at sales of properties fitting description.
o 2) there was a failure to make reasonable efforts to mitigate.
 Party who does mitigate can recover expenses. Party who does take reasonable steps to mitigate loss may recover,
as damages, the costs and expenses incurred in taking these reasonable steps, provided that the costs are reasonable,
and truly incurred in mitigation (Southcott).

3) Party entitled to SP can elect damages in lieu thereof

The general principle for assessment of damages is compensatory – to place the innocent party in the same position as if
the contract had been performed (Semelhago).
 Date of damages assessment is usually the date of breach.
o Normally, assessment of damages occurs at the date of breach. But this rule is not absolute: if to follow it
would give rise to injustice, the court has the power to fix such other date as may be appropriate in the
circumstances (Semelhago).
 Date of damages assessment where party entitled to specific performance is trial date.
o Wouldn’t be appropriate to insist on using date of breach when purchaser of a unique asset has a legitimate
claim to specific performance and elects to take damages instead, as the value of the asset may change over
time.
o Technically, claim of specific performance can be seen as reviving contract to the extent that the defendant
who has failed to perform can avoid breach if, at any time up to the date of judgment, performance is
rendered. In this way, date of breach is postponed to assess damages at the date of trial.

Retain Deposit and Sue

Depending on the language of the agreement, a deposit may be forfeited by a breach of the buyer, and may also be the
only remedy of the vendor.

If you are a S wanting to keep the deposit, consider: (Stockloser)

1. Is there forfeiture language  Court can relieve against the forfeiture of the deposit.
2. Does it look like a penalty? Is the size of the deposit out of proportion to the size of the damages?
3. Is it unconscionable to keep the deposit?

Seller’s / Buyer’s Lien Against the Title

In some circumstances, a vendor may transfer title to the property before they get paid fully by the buyer. In this
circumstance, the vendor has an equitable lien on the title.

The way you enforce a vendor’s Lien:

Remember in the LTA, you can’t register an equitable interest on title (s.33).
1. BUT the LTA has a caveat.
a. A temporary registration used to claim an interest in land that expires after 60 days. It is NOT easy to get
because the registrar is very careful about who it permits to register a caveat for.
2. You start an action in the court claiming an interest/lien over the property, then you could file a certificate of
pending litigation – much easier and less stringent requirements.
A vendor’s lien doesn’t rely on a contract saying it exists, or its registration. The lien is created (and the rights) as soon as
the circumstances arise.

Buyer’s lien – B pays some or the entire purchase price but never gets title. B can claim an equitable lien over the V’s
title.

53
 The minute a contract is formed, a beneficial interest in the land passes to the buyer (Pan Canadian Mortgage
Group).

Rescission
The unmaking of a contract – putting the parties back into the position they would have been had the contract never
existed. Rescission is NOT an easy remedy. It will also NOT BE GIVEN if the property is transferred to a third
person.

Three circumstance in which rescission is considered as a remedy:

1. *Error instubstantialibus (EIS): error that goes to the root of the contract, such that consideration has failed.
a. Total failure of the subject matter of the contract, i.e. selling you parcel A, but parcel A doesn’t exist.
2. Innocent misrepresentation.
a. Honest but incorrect statement that a reasonable person would make w/ the facts available.
3. *Fraudulent misrepresentation.
a. Willingly or recklessly made a false statement that is a fraudulent misrepresentation.
b. A statement made dishonestly or recklessly with regards to the truth of that statement.
c. Fraud has a very high standard.

Misrepresentation can give rise to rescission if: (Kingu)

1. The misrepresentation is made about an EXISTING fact (not a future fact).
2. The misrepresentation is made with the intention that the other party would act on it.
3. The misrepresentation induces the contract.
4. No innocent third parties have acquired rights to the property.
5. The innocent party has acted promptly in making a claim.
6. It is possible to restore the parties to their original position.

WHAT DO TO IN PRACTICE

If you are in a situation where you are representing the vendor and the purchaser hasn't sent you documents/communicated
with you and the LTO is now closed. You have an enforceable agreement: what do you do?
1. Consult with the client:
a. You have to decide with your Vendor if you are going to accept it (keep the deposit) or reject it (the contract
is still alive, and we are going to force you do it).
2. Take action on the date of closing or the next morning (ASAP).

Goal: SHOW THAT YOU ARE READY WILLING AND ABLE

Develop the Tender Letter

 We’re the lawyers for X. We ask you to contact us, we haven’t heard from you.
 We are ready willing and able and here is why: a, b, c…
 You are NOT ready willing and able which is evident because you haven’t tendered us with: x, y, z

If you don't do this, you risk losing your choice of remedies. If you are choosing to terminate say “We are RWA and we
had XYZ prepared and we are terminating the agreement and we will keep the deposit”.

Prepare your client’s case (transfers, financing – ready, willing and able)
Start thinking like a litigator – assume you will end up in court so start building your case:
 Go through all communication and all the times they didn't respond to the communication.
 If vendor:
o Have a signed transfer in your file that was dated on the closing date showing you were ready willing and
able.
 If buyer:
o Make sure you have money (sitting in lawyer’s trust account) or have made arrangements for money or if
there are undertakings, show evidence of all obligation on your part being fulfilled (aka show you are ready

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 to go).
Sometimes, it will come down to who is in less default than the other guy.

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COMPLETION / CLOSING

UNDERTAKINGS

In a real estate context, you need two things to close a transaction:

1. Vendor needs to provide clear title (clear of mortgage financing)
a. Problem: vendor has to discharge the mortgage, but the bank will not provide a discharge until the mortgage
is fully paid.
2. Purchaser needs to pay necessary funds to close
a. Purchaser needs to come up with the funds, less the deposit. The rest of the funds will be coming from the
bank – the purchaser has financing that they need to secure.
b. Problem: the bank won’t provide the funds until the purchaser has a realizable security.

Undertakings are the glue that holds all promises together. The undertakings of the lawyers, supported by the Law Society,
allows conveyancing to take place in this fashion to be able to close a transaction.
 The seller has to be confident that they will be able to sign the Form A transfer before receiving their funds.
 The buyer needs to know that it is safe to pay the money to the lawyer before they receive title.
 In the real estate context, the undertakings of lawyers supported by the LS enables these parties to operate in that
fashion and close a transaction.

Definition of an undertaking
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.

Effects of Undertakings
1. Personal liability
a. Once you grant an undertaking, you have to fulfill it even if there is no consideration for it, and even if it’s
not in writing.
b. LS Professional Conduct Handbook Chapter 11 sub 9 – lawyers are personally liable unless it is
abundantly clear they are not assuming personal liability.
c. Chapter 11 sub 7-(now 7.2-11 of the Code of Professional Conduct) – a lawyer is personally liable for the
breach of his/her undertaking (must not give an undertaking that can’t be fulfilled/fulfil every undertaking
given/scrupulously honour any trust condition once accepted).
2. A breach of an undertaking is a very serious matter.
a. It is one of only three situations that has to be reported to the law society, unless the recipient consents to or
waives the breach (Handbook Chapter 13(1)  now Code 7.1-3

What can happen for a breach of an undertaking?

 Civil liability
 Professional discipline
 Damages reputation

Who can give undertakings?

 Within a law firm, an undertaking can only be given by lawyers.
 The letters containing the undertaking has to be signed by the lawyer, not their assistant.
 Once you have given an undertaking, the only person that can release you is the person or lawyer to whom the
undertaking is given.
 In the context of a real estate transaction the undertaking is usually between lawyers - so the only person that can say
you have fulfilled it is the lawyer, (not the lawyer’s client).

Deemed undertakings
1. Handbook Ch 11 sub 8 now Code 7.2-12:
a. When you issue TRUST CHEQUE from your trust account, you have given an undertaking that you have
the funds that the cheque wont bounce.

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2. Handbook Ch. 11 sub 8.1 Now Code 7.2-13:
a. If you are a lawyer acting for a buyer of real property, and you accept the purchased monies in trust, and you
receive a registerable conveyance from a seller in favor of a buyer (Form A), then you as the buyer’s lawyer
are deemed to have undertaken to pay those monies to the seller on the completing of the registration.

Principles of Undertakings

1. Never give an undertaking unless it is wholly within your power to comply with it.
a. (i.e. never undertake to take a step that is outside your ability).
b. e.g., don’t undertake to deliver funds or documents unless you clearly specify that you must first have them
in hand and have the irrevocable authority of your client to deliver them (Handbook Canon 4(2) Now
Code 2.1-4(b)
2. Related to above, never give an undertaking based on performance by a third party.
a. If there is something else that needs to happen that is out of your control (something by a third party), never
take that on
3. If an undertaking is imposed on you, and you are unwilling and unable to accept it, you must get the other side
to agree to change it OR immediately return everything.
a. (Handbook Chapter 11(11) now commentary of 7.2-11 of the Code)
4. Don't impose undertaking on other lawyers that you wouldn't be willing/comfortable taking on yourself.
a. Chapter 11(10) now commentary of 7.2-11 of the Code prohibits lawyers from imposing on other lawyers
impossible, impractical or manifestly unfair conditions of trust
5. Never give an undertaking where a lesser form of assurance will suffice.
a. (unless it is necessary, don’t give an undertaking).
6. Always put undertakings in writing.
a. (Chapter 11(7.1)- now commentary of 7.2-11 of the Code) – if you give an oral undertaking, or if you
orally alter an undertaking (i.e. by telephone) you must follow up and confirm that in writing immediately
7. When drafting an undertaking, it has to be clear and unambiguous.
a. Draft with clarity and precision (Ch. 11(7.1) now commentary of 7.2-11 of the Code)
8. Never use the term undertaking unless it is in its proper sense.

STEPS IN A CLOSING

These four parties all have different objectives.

1. Vendor needs to provide clear title, and they want to get paid.
2. Vendor’s bank needs to get paid. When they do, they will deliver the discharge of the existing mortgage.
3. Purchaser needs to pay and wants clear title.
4. Purchaser’s bank needs to deliver funds after they have received the registered new mortgage.

We allow these objectives to happen in a sequential order to allow the deal to go through. Undertakings are not foolproof.

Steps
1. Purchaser’s lawyer prepares the closing documents and forwards those to the vendor.
a. TWO MAIN DOCUMENTS: Form A transfer & the new mortgage.
b. In a residential deal, the purchaser’s lawyer can act for both the purchaser and the bank – one of the rare
exceptions when a lawyer can act for parties with differing interest. (In this case, it will be the purchaser who
prepares the new mortgage that needs to be signed by the bank and the purchaser).
c. In a commercial deal, there will usually be three lawyers involved: purchaser’s lawyer, vendor’s lawyer, new
bank’s lawyer – here, the new bank’s lawyer will prepare the financing documents.
2. Vendor sends executed Form A to purchaser: The vendor’s lawyer receives the documents, has them executed, and
returns them to the purchaser.
3. Purchaser registers transfer: On the closing date, the purchaser’s lawyer registers the transfer and the new mortgage
at the LTO (Electronic filing).
4. Purchaser pays purchase price: Once the purchaser’s lawyer registers and has the pending numbers showing
transfer, the purchaser’s lawyers can request the funds from the bank (by showing the bank that the mortgage has been
registered); bank funds the purchaser; purchaser takes those funds and pays the vendor’s lawyer.

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5. Vendor uses purchase price to discharge mortgage: Vendor’s lawyer, on receipt of closing funds, will pay out
existing mortgage (30-60 days, during which time 2 mortgages on title). Vendor’s lawyer will provide balance of
funds not applied to mortgage to vendor.
a. If no discharge notice: If purchaser does not receive discharge notice from bank within 60 day window,
they must report this to the Law Society. This requirement is a response to the case of Re Wirick.
6. Vendor registers discharge: The vendor secures a discharge of the vendor’s existing mortgage from the vendor’s
bank and registers discharge at the LTO.

Now, all the parties have achieved their objectives.

 Vendor paid existing mortgage, received balance.
 Vendor’s bank has been paid out and delivered mortgage discharge
 Purchaser has paid the vendor and has been given clear title.
 Purchaser’s bank has delivered funds and has new mortgage.

Purchaser’s Lawyer’s Undertaking

Purchaser asks vendor to sign Form A and send it back to purchaser’s lawyer, on purchaser’s lawyer’s undertaking that he
will not use the transfer until:
1. To NOT register transfer until they know, to the best of their knowledge, that the purchaser has fulfilled all
conditions for funding with exception of registering new mortgage (confirmed with purchaser’s bank that they will
be able to obtain a new mortgage, survey, title insurance).
2. To NOT to register transfer until they hold in trust account sufficient funds [i.e. deposit] that when added to the
new mortgage proceeds would amount to full purchase price.
3. To disburse the closing funds (provide the funds to the vendor) when they are satisfied that after the transfer
and the new mortgage are registered in the LTO, that after the completion of a post search that they are satisfied
with, that the purchaser will become the owner of the property as contracted for (i.e., clear of all charges that are to be
discharged).
a. The vendor’s mortgage will still be on there – the discharge hasn’t happened yet.
b. Before you register, do a pre-search to ensure that there are no intervening charges. After you register, do a
post-search. The purchaser’s bank will be willing to fund based on this pending registration.
4. To return transfer, unregistered, or to make application to have transfer withdrawn (along with new
mortgage), if cannot uphold above undertakings.
a. Will unwind the whole thing and give the transfer back – safety net.

Vendor’s Lawyer’s Undertaking

1. To pay out the existing mortgage (the amount required in their payout statement).
2. To use their commercially reasonable and diligent efforts to obtain/register a discharge in a timely manner (i.e.
take reasonable steps to cause the mortgage and assignment of rents to be discharged from the title).
3. Provide the purchase of evidence of that discharge when able to obtain it.

What happens if purchaser’s lawyer or the purchaser say they aren’t comfortable with this? They want an undertaking to
provide discharge period (not just use best efforts). What’s the concern with providing this?
 3rd party issue (what if bank makes a mistake) – can’t promise to do things you can’t control.
Can say to the other lawyer: could look at contract of P&S (it should talk about typical standard BC undertakings) –
saying you signed K of P&S requiring us to close on typical undertakings; but what exactly is the P’s lawyer asking
you to do?
o You have to get the discharge – basically asking you or your firm to be the ultimate insurance policy (for
example if for some reason the funds are insufficient, you’ll be liable for the remainder in order to get the
discharge – you’ve put yourself and your firm out there to cover the difference).

Risks of Undertakings

Undertakings create risks for clients – so unless there is direct authorization from the parties, the lawyers cannot use
undertakings to close (Norfolk).
 In Norfolk, the court refers to Edward Wong Finance v Johnson. Even though undertakings were accepted as the

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 universal procedure to close in Hong Kong, the lawyer needed explicit authority to do so (because they created risks).

Risks  the purchaser is giving over money without getting clear title (you may be the beneficial owner of property, but
you have not been granted legal title). Clear title happens after, in a delayed manner.
 It can go wrong where the vendor’s lawyer, instead of fulfilling its undertaking to pay off the existing mortgage, keeps
it fraudulently or discharges it to the vendor (Re Wirick).
 Re Wirick: the essential risk of using an undertaking is that the purchaser is hanging over money before they get clear
title. As a result of this, new rules were put in place (Law Society R 3-8, 3-89).
o If the vendor’s lawyer fails to provide the purchaser’s lawyer with confirmation of the discharge within 60
days, the purchaser’s lawyer must notify the law society of the failure of the vendor’s lawyer to get the
discharge in a friendly manner.

ADD CBA STANDARD FORM UNDERTAKINGS HERE54

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POST COMPLETION

MERGER AND RESCISSION

Doctrine of Merger
This English doctrine will destroy all pre-closing representations in the purchase and sale agreement. Once title is
transferred, all that you will have left after closing are the representations and warranties in the actual transfer
document (Form A).
 Don’t forget there are many imputed reps and warranties in Form A through the LTFA.
 This made a lot of sense in England, where they don’t have a Torrens system. Less sense in BC.

In Canada, there was a presumption that pre-closing representations will merge (disappear) in conveyance, unless the
PSA says otherwise (Redican v Nesbitt).

This presumption was reversed.

Now, pre-closing representations will not disappear (merge) in the conveyance unless the PSA says otherwise (Fraser
Reid v Draumstekas).

Exceptions to the Doctrine of Merger

1. Survival clause
a. Specific exceptions in the PSA that allow for survival of reps and warranties for a set period of time.
b. Will typically be a time limit on that survival.
c. The vendor will not want the reps and warranties to last for too long – will want 6 months or so.
d. The purchaser will want the reps to survive for 2 years so if something goes wrong they can sue on it.
2. Error in substantialibus
a. Total failure in consideration.
b. Hyrsky: if there is a “total failure of consideration” then the court will award rescission. In this case, the
issue was that the vendor only owned a portion of the land that was supposedly transferred in the PSA.
3. Fraud
a. If a rep or warranty is proven to be fraudulent, then that is an exception to the doctrine of merger.
b. There is no cure for fraud – Allen v McCutcheon.
4. Collateral obligations (see below for limitations and TEST)
Collateral obligations are warranties that are outside of the PSA– these can also survive the doctrine of merger. This is a
device where courts see an inequitable situation and use the idea of collateral obligations to elevate pre-contractual to the
point of being contractual.

When it comes to these collateral agreements, there are several things that can bar their enforcement:
1. Parole evidence rule: where parties have reduced their agreement to writing, evidence of prior representations and
negotiations are not admissible to either add, vary or contradict that written agreement.
a. There are many exceptions to this rule, but it is essentially a substantive legal principle.
2. The entire agreement clause: a clause in the PSA that states the written agreement is the entire contract – this is the
four corners of our agreement and there is nothing outside the agreement.
a. These can preclude collateral agreements that survive the doctrine of merger – they are the last hurdle that
needs to be passed.
b. But they will only be enforced if there is evidence that both parties have lawyers and are made aware of the
clause.
c. Courts have also found that when they come to analyze the entire agreement clause, it is essentially a matter
of fact of whether the parties intended these clauses to exclude reliance on the collateral agreement – depends
on analysis of the specifics of the case and whether the parties intended to preclude that specific collateral
agreement.
i. Court can look at equities of the situation.
3. Section 59 of the Law and Equity Act states that all contracts dealing with land must be in writing to be enforceable.
a. Purely oral reps and warranties in real estate are probably in contravention.
4. A lack of consideration – typically solved because there is a PSA, which will be sufficient to show consideration.

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Collateral Obligation Test
The court in Robert v Montex Development provide the test for determining when a statement is a warranty in law
(something with contractual force) rather than a mere representation.
To be a warranty:
1. Has to me made during the course of dealings that lead up to the contract and becomes part of the contract
(here this happened, talking about property, and gave brochures).
2. Explicitly or implicitly intended by the parties to be a warranty (some kind of mutual understanding that
forms a part of what you are buying).
3. Statement of fact on something that the purchaser is ignorant of and the vendor has special knowledge (not
just an opinion).
If you meet these three criteria, the collateral warranty will survive the doctrine of merger. Further an entire agreement
clause will not be used to preclude the collateral warranty if the other party didn't receive legal advice or was not
made aware of the EAC. (Practice Point: if the other side is unrepresented get their initials beside it!).

Other Post-Closing Relief

Negligent Misrepresentation
The elements of the tort (Queen v. Cognos):
1. There must be a duty based on a special relationship between the representor and representee.
2. Representation in question must be untrue, inaccurate or misleading.
3. The representor must have acted negligently in providing said negligent misrepresentation.
4. The representee must have relied in a reasonable manner on the negligent misrepresentation.
5. The reliance must have been detrimental to the representee in the sense that damages resulted.

When does an entire agreement clause exclude an action for negligent misrepresentation? NOT THAT CLEAR
(Intrawest Corp v Taurus Ventures).
1. It is clear from the case law that parties may arrange their affairs to exclude liability in tort by including valid
exclusion clauses in their contract - BUT don't need to expressly refer to negligence in the exclusion clause to be
affected.
a. The entire agreement clause in the contract between the parties did not explicitly refer to negligence but
BCCA held that where the parties were both “sophisticated, commercial entities” and the contract was not a
standard adhesion contract and was clearly intended to govern the relationship between the parties, “it would
not accord with commercial reality to give no effect to the entire agreement clause in determining whether
Taurus can claim a tort remedy”.
2. The principles of concurrency state that if there is an express term of the contract which is coextensive with the
common law duty of care which the representee alleges the representor breached, then the entire exclusion clause
excludes this claim. This means that, in the face of an entire agreement clause, you can only bring an action for
negligent misrepresentation if that representation is not part of the contract. If there was something in the
contract dealing with the ski-in/ski-out then you can’t sue for negligent misrepresentation based on that because it was
dealt with in the entire agreement clause.
a. In this case both parties were pretty sophisticated, and they negotiated the contract and everyone knew what
they were getting into and they had an entire agreement clause – based on that Taurus is not now allowed to
upend the commercial reality he got himself into.
3. In order for there to be a collateral contract, you need to find evidence of contractual intent.
a. In this case the CA thought that that intent was there so since the trial judge gave no consideration of that, it
was an error in law and the matter needed to be retried.

Undue Influence
Agreements depend on consent, so it follows that if agreements are obtained by threats or undue influence, relief should be
granted.
 In common law: the doctrine is much narrower – include actual violence, for example.
 In equity: it is much broader – word or influence asserted to prevent the other party from exercising

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 independent judgment. Doesn’t necessarily have to be intention on the party asserting the judgment to influence the
other party to gain advantage.
In both CL and equity, undue influence can lead to the rescission of a contract.

Environmental Disclosure
Environmental disclosure on the level of fraud creates a remedy available to purchasers (CRF Holdings v Fundy
Chemical International).

Implied Covenants
Courts have found an implied warranty of fitness for incomplete houses that are intended for habitation, but not completed
when the PSA commitment is made (Owners Strata Plan v Oaktree Construction). Law imposes on the builder an
implied warranty that both the work already done and the work to be completed is done in a good workmanlike manner.
This does not apply to complete homes.

Title Covenants
 LTA s.185: requires transfers to be in prescribed form (Form A).
 s.186: form may be deemed to be made pursuant to the LTFA, which imports additional meanings to the Form A:
 Transfer includes all the buildings and the benefits.
 Quiet enjoyment – no claims through the vendor.
 Vendor will indemnify the purchaser for claims that are made about the vendor.

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