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Professional Standards Manual

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Trading Services

4. General Information

(a) Contract Clauses - View Entire Section

(XVI) "Subject to" Clauses — General Information - View Subsection
(1) How the Law Works

The leading statement of the law in this area is found in the dissenting judgment of Mr. Justice Lambert in Wiebe v. Bobsein, [1985] 64 B.C.L.R. 295; 39 R.P.R. 228; 20 D.L.R. (4th) 475; [1985] B.C.J. No. 1742 (C.A.). In that case, Mr. Justice Lambert compared the different results that occur, depending on whether a subject clause is subjective, objective, or partly subjective and partly objective. First, he described the consequence of using a subjective subject clause (Wiebe v. Bobsein, [1985] B.C.J. No. 1742 at paragraph 15).

Each condition precedent case must be considered on its own facts. As (the trial judge) indicated, some conditions precedent are so imprecise, or depend so entirely on the subjective state of mind of the purchaser, that the contract process must still be regarded as at the offer stage. An example would be ‘‘subject to the approval of the president of the corporate purchaser’’. (Emphasis added.)

This means that if a subject clause is wholly subjective (sometimes called a whim and fancy clause), the court may view the arrangement, in law, as nothing more than an offer by the seller that the buyer may accept by removing the subject clause. In other words, even though there was an initial offer, followed by an acceptance, and the document is called a Contract of Purchase and Sale, the arrangement, in law, is nothing more than an offer until the subject clause is removed.

Next, Mr. Justice Lambert explained what happens when the subject clause is objective (paragraph 15):

In other cases, the condition precedent is clear, precise and objective. In those cases, a contract is completed; neither party can withdraw; but performance is held in suspense until the parties know whether the objective condition precedent is fulfilled. An example would be ‘‘subject to John Smith being elected as Mayor in the municipal election on 15 October of this year’’.

If the subject clause is objective, a contract comes into existence as soon as the offer is accepted. The obligation to carry out the contract to completion is suspended until the subject clause is removed.

Finally, Mr. Justice Lambert described the result when a subject clause is partly subjective and partly objective (paragraphs 16-18),

But there is a third class of condition precedent. Into that class fall the types of conditions which are partly subjective and partly objective. An example would be ‘‘subject to planning department approval of the attached plan of sub-division’’. This looks objective, but it differs from a truly objective condition in that someone has to solicit the approval of the planning department. Perhaps some persuasion of the planning department will be required. Can the purchaser prevent the condition from being fulfilled by refusing to present the plan of sub-division to the planning department? This type of case has been dealt with by implying a term that the purchaser will take all reasonable steps to cause the plan to be presented to the planning department, and will, at the proper time and in the proper way, take all reasonable steps to have the plan approved by the planning department.

The law in relation to implying terms in an agreement is no different in relation to conditions precedent than it is for other terms of an agreement. Business contracts should not be permitted to fail over an omission that the parties would immediately have corrected if the parties had noticed the omission at the time the contract was made. And we have the business efficacy test and the officious bystander test to guide us. In the example I have given, it is clear that business efficacy requires that someone must present the plan of sub-division to the planning department, and the officious bystander test would be met by both parties answering the hypothetical question of the hypothetical onlooker, as to who will present the plan, by saying: ‘‘Of course the purchaser will do it’’.

But there are cases that fall in this third class of condition precedent where it will not be possible to imply the missing term, and the agreement will fail for uncertainty. In those cases the court cannot write a contract for the parties.

Where a subject clause is partly subjective and partly objective, the court must determine whether its features are objective enough to constitute a contract. If, on the other hand, the clause is predominantly subjective, then the arrangement will amount to nothing more, in law, than an offer which the buyer may accept by removing the subject clause.