So often I hear about buyers making offers to purchase homes conditional on inspection, financing or any other condition, with the belief that they will be able to just “get out” of the deal by “using” the conditions. This is not always the case, as an agreement of purchase and sale is a legally binding contract.
Agreement of Purchase and Sale
An Agreement of Purchase and Sale is a legally binding contract. The Supreme Court of Canada has stated several times, and most recently in Bhasin v Hrynew (2014 SCC 71), “that there is a common law duty which applies to all contracts to act honestly in the performance of all contractual obligations” (at para 33, emphasis added). This case also expresses the concept that “good faith contractual performance is a general organizing principle of the common law of contract which underpins and informs the various rules in which the common law, in various situations and types of relationships, recognizes obligations of good faith contractual performance” (at para 33, emphasis added).
If the contract requires that the buyer obtain financing, the buyer has an obligation to, in good faith, attempt to fulfill that obligation. Even if that condition is expressed as being fulfilled only in the sole and absolute discretion of the buyer being satisfied that the terms of the financing are acceptable, at the very least that buyer must go to a bank or other lending institution, and make a legitimate application to obtain financing for the purchase. If the buyer is able to obtain such financing, it is not good faith, and it is not acting honestly, if the buyer does not communicate satisfaction or waiver of that condition. If that is the only condition, the contract is then legally binding and unconditional.
Warning for Buyers
If you are a Buyer, before you sign a legally binding contract, make sure that you understand exactly what it is that you are signing. Buying a house is often an individual’s single largest purchase in that person’s lifetime, contemplating hundreds of thousands of dollars. These contracts should not be entered into lightly, or with a view to “getting out” “using” a condition. Depending on the circumstances, you may find yourself in an expensive litigation battle.
Warning for Sellers
If you are a Seller who has accepted an offer conditional on financing or home inspection or other condition, and a condition has not been fulfilled, which you believe should have been, you may have rights that may be enforced for breach of contract based on failure to perform contractual obligations in good faith and honestly. Please contact me if you believe this has happened to you.