Honest Efforts not Best Efforts Required for Financing
The British Columbia Court of Appeal recently considered the issue of the failure to secure financing following the decision of the Supreme Court of Canada in Bhasin v. Hrynew 2014).
Gordon Nelson Inc. v. Cameron (23 July 2018) was a case in which Gordon Nelson wished to purchase a property from Cameron. It was a commercial property. The Purchaser failed to secure satisfactory financing and wished to resile from the Agreement. The Seller wished to retain the deposit.
The Trial Judge stated that “honest efforts” were all that were required. The Vendor appealed to the British Columbia Court of Appeal maintaining that “best efforts” were required and that was an obligation in law. The Court of Appeal disagreed and accepted the view of the Trial Judge.
The Purchaser was entitled to the return of the deposit. Honest efforts had been proven, and best efforts were not required.
This is the Clause in the contract:
This offer is subject to the following conditions:
4. The Buyer finding, in their sole discretion, suitable financing for the property within 45 business days of receipt of a satisfactory Phase I environmental report for the subject property. This condition is for the sole benefit of the Buyer.
The Legal Choices
There are some choices available in terms of the interpretation of this clause. Justice Lambert (BCCA) in Griffin v. Martens (1988) stated:
What is meant by “satisfactory financing”? There are four rational alternatives:
1. “satisfactory to a reasonable person making the purchase about whom nothing else is known”;
2. “satisfactory to a reasonable person in the objective circumstances of the purchaser”;
3. “satisfactory to a reasonable person with all the subjective but reasonable standards of the particular purchaser”; and
4. “satisfactory to the particular purchaser with all his quirks and prejudices, but acting honestly”.
Note: in that case, Lambert J. selected #3)
Evidence of Efforts
This is how the Court of Appeal summarized this issue:
“In brief, after entering the contract the respondent (Purchaser) prepared a detailed information package for prospective lenders.
The package was given to two mortgage brokers with whom the respondent (Purchaser) had a prior business relationship.
One broker made contact with prospective lenders and advised the respondent that he could likely arrange a loan of about $4.55 million.
The other broker indicated a willingness to lend $4.5 million. The respondent therefore concluded that only about $4.5 million would be available in the market to finance the purchase.
Given the purchase price of $7 million, the respondent decided that it would have to make a significant equity contribution to complete the purchase. In those circumstances, it concluded that suitable financing was not available and informed the vendors that it would not be removing the financing condition.”
You will, of course, appreciate that the amount and the rate, the costs, expenses, terms, renewal fees and the like are all important factors when determining whether or not the financing is “satisfactory”.
In this case, two mortgage brokers were contacted, each of whom would represent many potential mortgagees. My guess is likely 25 apiece. So, contacting two mortgage brokers is just like contacting 50 potential mortgagees.
Trial Judge’s View
The Court of Appeal stated referring to the Trial Judge:
 In the result, the judge concluded that the case law did not support a general proposition that, regardless of the express terms of a contract, a “best efforts” term must always be implied in relation to subject conditions: see para. 79.
She concluded that the contract properly interpreted adopted the fourth possible meaning set out immediately above.
Moreover, she held that the contract as a whole, but particularly in light of the financing condition, should be read as an option in favour of the purchaser.
She ordered the deposit paid by the purchaser to be returned.
The Court of Appeal also stated the following:
 It is apparent from the foregoing that the judge reached a number of key conclusions in finding that the contract imposed only an “honest efforts” requirement to find suitable financing.
These included that “best efforts” are not always to be implied, effectively as a rule of law, into any subject to financing condition.
Rather, the express terms of the contract prevail.
In this case, there was no need to imply a term because the contract, by using the “sole discretion” language, mandated only an “honest effort”.
Moreover, in face of the express language there was no need to imply a term to give the contract business efficacy.
Finally, the contract should be interpreted as conferring on the respondent an option to purchase.
Note: the penultimate statement in #9 by the Trial Judge about the option was really not the best. There’s a risk of appeal here!
Decision and Reasoning
Mr. Justice Harris said:
 I share the view of the judge, and substantially for the same reasons, that cases such as Griffin are not authority for a general proposition that conditions regarding “satisfactory” or “suitable” financing oblige the purchaser in all cases to make “best efforts”.
 It follows that the judge was correct to treat the contractual obligation as defined by the express language of the contract.
This is not a case about implying a contractual term in the absence of a term being expressly stipulated in the contract.
To imply a term in these circumstances would be impermissibly to construct an agreement for the parties, contrary to the agreement they objectively made.
Equally, the judge was correct to conclude that, in any event, implying a term was not necessary to give the contract business efficacy.
Making an honest effort to find suitable financing and honestly concluding, having tested the market, that suitable financing was not available is an efficacious business arrangement.
The judge found the purchaser honestly concluded that the market would not provide suitable financing and that further searching for financing would be pointless.
She did not find that the purchaser availed itself of the financing condition to avoid a purchase it no longer wanted for other reasons.
Option to Purchase
Please note that in paragraph 12 of the reasons of the Court of Appeal Justice Harris said:
“Here, the judge’s characterization of the contract as an option to purchase is not a critical step in her reasoning.”
For obvious reasons, that particular statement seemed a little cavalier. It was “obiter dicta” meaning an unnecessary side comment by the Judge, and not part of the “ratio decidendi” being one of the necessary parts to the decision.
This is an interesting decision. It is post Bhasin which calls for “honesty and good faith” in the performance of a contract.
Here, there were no ulterior motives. Two mortgage brokers were engaged. That seems reasonable. How many mortgage brokers would “best efforts” have been?
The “best efforts” provision is not an implied term. So, if you were acting for the Seller, then, you should “write it in”.
Brian Madigan LL.B., Broker