Wednesday, May 23, 2007

 

A Contract To Enter Into A Contract Is Unenforceable


There is no such a thing in Real Estate as agreeing now to agree at a later date.
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Real Estate, by its own very nature, is all black and white - you either do things, or you don't.

There is no grey area in Real Estate, which one can find otherwise in commerce and trade. For instance, letter of intents that are widely used prior and during negotiations between corporations or between individuals and corporations have no place whatsoever in the world of real estate, where the only subject matter of trade is the exchange of titled interests in land for money. One cannot stipulate today to contract out in the future and hope the stipulation will be upheld, unless such an agreement is contained in a contract drafted and accepted today and is in the form of an option.

In essence, a stipulation to contract out at a later date is a void contract, meaning that such a stipulation does not exist under the law of real estate because no contract ever existed in the first place. Therefore the parties to the stipulation must be returned to their original bargaining positions as far as it is practically possible. This is also the case in the situation where both parties want the stipulation to continue - an impossibility since no contract exists between them in the present tense.

This principle was recently reaffirmed in the Supreme Court of British Columbia in a case involving a private transaction between a prospective Purchaser and a prospective Seller. In this case there was a document executed between the parties, which clearly set out the legal description of the real property to be exchanged as well as the purchase price - CAD 580,000. The document also set out that there would be a deposit of $10,000 held by the purchaser's lawyer in trust, that the deposit would be applied towards the purchase price and that it would be returned to the purchaser if the sale failed to complete.

Although on a cursory examination this document closely resembled a Contract Of Purchase And Sale there was, however, a fundamental element entirely missing: the date of completion. As no completion date had yet been agreed upon, a paragraph was inserted in its lieu that read as follows:

"The Contract of Purchase and Sale of the Property will be prepared by the Purchaser's lawyers with terms & conditions, and the date of completion of the Property to be agreed by the Vendor and the Purchaser".

Later on a completion date was actually agreed upon by the parties, stipulated to be March 3, 2005. On February 24, the solicitor for the Purchaser forwarded to the solicitor for the Vendor the necessary documents to complete the transfer. However, on March 3, 2005, the completion date set out in the document, the vendor declined to complete, on the grounds that there was only an agreement to agree in the future to the purchase and sale of the subject property.

The Court agreed with the Vendor. In reaching his conclusion, the Trial Judge opined as follows:

"Here the wording of the executed document is clear. The parties have said that a contract will be prepared with terms and conditions to be agreed by the vendor and the purchaser. "To be agreed" means some further agreement is necessary in the future. [...] this is a circumstance where "the execution of the further contract is a condition or term of the bargain".

In other words, where the parties have stated that the terms and conditions are to be agreed, it cannot be said that the document is the mere expression of the desire of the parties as to the manner in which the transaction already agreed to will in fact go through.

The deposit was ordered reimbursed to the Purchaser forthwith.

Luigi Frascati

luigi@dccnet.com
www.luigifrascati.com

Real Estate Chronicle

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