Legally Speaking - July 2013 (463)
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Legally Speaking (463, July 2013)

 

Number 463, July 2013

A TRUE CONDITION PRECEDENT

Mike ManganIn Swan Group Inc. v. Bishop, a $130,485 deposit was at stake.1 The issue was whether a subject clause was a true condition precedent (TCP).

At common law, a TCP is an external condition whose fulfillment depends on the will or actions of someone who is not a party to the contract;2 for example:

[s]ubject to the … necessary approvals of the Ontario Municipal Board … to the site plan … .3

Until a TCP is fulfilled, the obligation of all parties to carry out the transaction is suspended. If the particular event does not occur, the contract becomes void and they are all excused. Consequently, to waive a TCP, every party must consent. One party may not unilaterally waive a TCP.

There are two exceptions. First, in the contract, the parties may expressly give to one side the right to waive the particular TCP. Second, legislation permits one party to waive a TCP if these criteria apply:4

(a) the subject clause benefits only that party,
(b) the contract is capable of being performed without fulfilling the subject clause in question, and
(c) the waiver occurs before the subject removal deadline.

By comparison, an ordinary condition precedent requires a party to do something; for example:

Subject to the buyer confirming that zoning for the property is RM-1 (Multiple Dwelling) … .

An ordinary condition precedent does not affect the existence of the contract. Until that subject clause is fulfilled, it suspends only that party's obligation to perform his or her contractual obligations. Anytime before the subject removal date, that party may waive the condition and demand full performance from the other side.

In April 2007, the seller entered a pre-sale contract to construct and sell a condo to the buyer for $922,094. The buyer paid a deposit of $130,485. The contract contained this subject clause (Developer's Condition):

This offer is subject to the following Developer's Condition:

(a) the Developer shall register the Phased Condominium Plan creating the units shown on Schedule 1 on or before Sept. 30, 2008.

On May 6, 2009, the seller registered the condominium plan (equivalent to a strata plan in BC), roughly seven months after the September 30 deadline. The buyer did not object. Then, shortly before closing in November 2009, the buyer announced that he would not complete for lack of funds.

Both sides claimed the deposit. The Alberta Court of Appeal found that the Developer's Condition was not a TCP. Since this was an ordinary condition, the seller's failure to register the condominium plan by September 30 did not void the contract. Instead, the seller could waive it without the buyer's consent.

The Developer's Condition required the seller to register the condominium plan. The remote possibility that the registrar, a third party, might reject the seller's filings did not convert this into a clause whose fulfillment depended on the will or action of someone who was not a party to the contract. The wording did not make the contract subject to the registrar approving something. The contract was alive when the buyer announced that he would not complete. The seller was entitled to the deposit.

Swan Group offers a reminder to pay special attention to any subject clause whose fulfillment depends on the will or action of someone who is not a party to the contract (e.g., subject to the registrar approving the attached plan of subdivision). It is critical to expressly make the subject clause for the sole benefit of one party and to reserve that party's right to waive the subject clause. If not, one's client may be shocked to discover that he or she needs the consent of every other party to waive the subject clause, failing which the contract is dead.

Mike Mangan
B.A., LL.B.

  1. Swan Group Inc. v. Bishop, 2013 ABCA 29, rev'g 2012 ABQB 146, rev'g 2011 ABQB 533.
  2. Turney v. Zhilka, [1959] S.C.R. 578.
  3 Barnett v. Harrison, [1976] 2 S.C.R. 531.
  4 Law and Equity Act, R.S.B.C. 1996, c. 253, s. 54.
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