Doctrine of Good Faith Extended by B.C. Supreme Court
On 1 September 2017, the British Columbia Supreme Court considered the exercise of discretion by a Seller.
An Offer was submitted and accepted on an upscale property in Vancouver. The Seller was not sophisticated and as a result the real estate agent added a clause that the deal be made subject to lawyer’s approval.
Here’s how that clause read:
“Subject to the Seller’s legal representative/lawyer approving the terms and conditions of the contract on or before October 17, 2016. This condition is for the sole benefit of the Seller. ...”
After the Offer was accepted, but prior to meeting with the lawyer, a better Offer on more favourable financial terms was submitted.
The Seller accepted the second Offer. The first Buyer was upset and sued for specific performance.
The Trial Judge, Mr. Justice Smith commented upon the applicable law as follows:
 When a Contract of Purchase and Sale of real estate is subject to the vendor obtaining approval from a third party, the vendor is under a duty “to act in good faith and to take all reasonable steps to complete the sale”: Dynamic Transport Ltd. v. O. K. Detailing Ltd.,  2 S.C.R. 1072 [Dynamic] at 1084.
The vendor must act “reasonably and in good faith and not in a capricious or arbitrary manner”: Mason v. Freedman,  S.C.R. 483 [Mason] at 487.
 Dynamic and Mason were among the many cases referred to in Bhasin v. Hyrnew, 2014 SCC 71, at para. 93 where the Supreme Court of Canada confirmed the “general organizing principle of good faith” in contract law.
 Contractual provisions making performance subject to the advice or opinion of a third party are sometimes referred to as “discretionary” provisions in that they may involve both the advice received and the contracting party’s decision based on that advice.
The question of whether the discretion has been exercised honestly and in good faith may be judged on either a subjective or objective standard, depending on the nature of the condition and the intention of the parties as disclosed by the contract.
However, “no contractual discretion is absolute, in the sense of authorizing the capricious or arbitrary exercise of the discretion”: Marshall v. Bernard Place Corp.,  O.J. No. 463 [Marshall] at paras. 16 to 20.
The decision of the Trial Judge was as follows:
 I find that the defendant, in purporting to rely on the lawyer’s approval condition to consider and accept a subsequent competing offer, failed to act in good faith and was in breach of her contract with the plaintiffs.
In view of her concession that specific performance is the appropriate remedy in these circumstances, I order that the Contract of Purchase and Sale of the Property to the plaintiffs be performed.
This case is a good example of the “good faith” obligations in contract law. That was summarized by the Supreme Court of Canada in Bhasin v. Hrynew 13 November 2014.
There was an existing contract. The second purchaser was a fortuitous occurrence. It had nothing to do with the deal at hand. Had the property been sold unconditionally, the deal was struck and there were no “outs” by the Seller. In this case, we did have the issue of “lawyer’s approval”. Was that a good enough “out” for the Seller? Not according to the Trial Judge. Honesty and good faith contractual performance are expected.
Brian Madigan LL.B., Broker