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Professional Standards Manual

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4. General Information

(a) Contract Clauses - View Entire Section

(XVI) "Subject to" Clauses — General Information - View Subsection
(11) Contracts under Seal

The latest edition of the Contract of Purchase and Sale developed by the B.C. Real Estate Association and the Canadian Bar Association (B.C. Branch) contains a clause which provides that the acceptance of the seller is irrevocable until the terms and conditions are waived or declared fulfilled or any options are exercised. The provision also provides that the Contract of Purchase and Sale is executed under seal. Clause 21 of the standard Contract of Purchase and Sale provides:

Acceptance Irrevocable (Buyer and Seller)

The Seller and the Buyer specifically confirm that this Contract of Purchase and Sale is executed under seal. It is agreed and understood that the Seller’s acceptance is irrevocable, including without limitation, during the period prior to the date specified for the Buyer to either:

(a) fulfill or waive the terms and conditions herein contained; and/or (b) exercise any option(s) herein contained.

As a result of this clause, once the seller accepts the contract, the seller cannot argue that the conditions imposed by the buyer were too subjective or uncertain to be enforceable. In other words, the acceptance of the seller is irrevocable. Additionally, because the clause provides that the Contract is executed under seal, no additional consideration is required to be paid by the buyer to the seller.

Throughout the Professional Standards Manual, various clauses are referenced which may be determined to be too subjective to be enforceable. In all cases the following statement appears below the clause:

Ω If not using the standard form Contract of Purchase and Sale, refer to ‘‘Contracts under Seal’’ above.

If a licensee is using the current version of the Contract of Purchase and Sale, the contract is automatically executed under seal.

However, if a different form of Contract of Purchase and Sale is used and the Contract contains subject clauses that are overly subjective, licensees should include a clause that provides that the Acceptance is Irrevocable similar to Clause 21 as set out above and ensure that the contract is executed under seal in the following way.

For each party, ensure the presence of an adhesive wafer seal, or a mark representing a seal, adjacent to the line reserved for that party’s signature. If a mark is used to represent a seal, write the word seal next to the mark. It does not matter whether the mark representing the seal is a preprinted black dot on the paper itself, or a hand drawn ellipse containing the printed word seal, or anything else, so long as the document clearly shows the intention to execute the option agreement under seal. Each party’s seal, or mark representing a seal, must be placed on the paper before or at the time that party signs the document.

If a seller or buyer does not personally execute the Option Clause under seal but instructs someone else to sign it as their agent, the licensee should note the following concerns. In Friedmann Equity Developments Inc. v. Final Note Ltd. (2000), 188 D.L.R. (4th) 269, the Supreme Court of Canada confirmed that as a general rule, an agent who executes an agreement under seal in the agent’s own name will be personally liable upon it if the agent fails to disclose the name and existence of the agent’s principal. This is called the sealed contract rule. Where an agent makes a contract under seal without disclosing the name and existence of his or her principal, the sealed contract rule makes the agent personally liable under the agreement. The rule also prohibits the principal from suing, or being sued, under the contract. To avoid personal liability under the sealed contract rule, an agent who signs an option agreement under seal on behalf of the seller or buyer must record both the identity of the principal on whose behalf he or she is signing and his or her status as an agent. For example, suppose the seller has given a power of attorney to the listing licensee to execute the option agreement. The licensee should sign the addendum containing the Option Clause under seal, as follows:

[Seller’s name] by his or her attorney in fact, [Licensee’s signature]. Followed by the date and time.

Or

[Licensee’s signature] as agent for [Seller’s name]. Followed by the date and time.

Because the standard ‘‘Contract of Purchase and Sale’’ contains the Acceptance Irrevocable Clause and is executed under seal, it may be that even a very subjective subject clause will not render the contract unenforceable as the court will accept that Clause 21 effectively prevents the seller from revoking his or her acceptance. However, the clause has not yet been tested in court. Thus, in all cases, and particularly, where the standard ‘‘Contract of Purchase and Sale’’ is not used, such as in an Offer to Lease or where the contract is prepared by a developer, a licensee should keep the following in mind.

Summary

1. Strive to make each subject clause as objective as possible. Avoid making the outcome of the subject clause substantially dependent on subjective criteria (e.g., the state of mind of the buyer or of a third party).

2. Despite a licensee’s best efforts, there will be occasions where a client’s instructions, or circumstances, compel the use of a subject clause that is very subjective. If it is not possible to avoid a clause that depends substantially on subjective criteria, a licensee should:

a. Warn the seller, or buyer, as the case may be, that there may not be a binding contract. Instead, the arrangement, in law, may be nothing more than a standing offer by the seller to the buyer that the buyer may accept by removing the subject clause.

b. If so,

(i) the seller’s agent should warn the seller that:

(1) if, pending subject removal, there is no contract, the buyer may have no obligation to act fairly, honestly, and in good faith to satisfy the subject clause, and

(2) if the seller receives another offer while such a standing offer exists, the seller should obtain legal advice if he or she wishes to revoke the standing offer in order to proceed with the second offer.

(ii) the buyer’s agent should:

(1) warn the buyer that there is the potential for the seller to cancel the deal by revoking the seller’s standing offer until the buyer removes the subject clause; and

(2) recommend the use of one of the Option Clauses shown above to bind the seller to keep the offer open until the subject removal deadline;

(3) alternatively, keep the length of time for removal of the subject clause as short as possible;

(4) where a licensee uses an Option Clause supported by consideration, the licensee must verify that the consideration is actually paid and obtain a receipt for it;

(5) where a licensee uses an Option Clause supported by a seal, the licensee must ensure there is a seal, or a symbol representing a seal, beside each party’s signature and ensure that the seller and buyer personally sign the document.