BC Real Estate Trading Services Course Law of Contracts Questions and Answers — Questions and Answers
Question 1: In British Columbia, which of the following is an essential element required for the formation of a legally binding contract for the purchase and sale of real estate?
- A verbal agreement between a buyer and seller witnessed by a third party.
- An advertisement listing the property for sale with a specific price.
- A written agreement signed by the party against whom enforcement is sought. (Correct answer)
- A handshake agreement followed by the payment of a deposit.
Correct answer: A written agreement signed by the party against whom enforcement is sought.
In British Columbia, the Statute of Frauds requires that contracts dealing with an interest in land, such as a Contract of Purchase and Sale, must be in writing and signed by the party to be charged (the person against whom the contract is to be enforced) to be legally enforceable. Verbal agreements are generally insufficient for real estate transactions.
Question 2: A buyer in Vancouver includes a 'subject to financing' clause in their Contract of Purchase and Sale. If the buyer acts in good faith but is unable to secure a mortgage approval from their bank after making reasonable efforts, what is the most likely outcome?
- The buyer is in breach of contract and will forfeit their deposit.
- The seller can sue the buyer for specific performance to force the completion of the sale.
- The contract becomes null and void, and the buyer is typically entitled to the return of their deposit. (Correct answer)
- The buyer is obligated to find an alternative lender, regardless of the interest rate offered.
Correct answer: The contract becomes null and void, and the buyer is typically entitled to the return of their deposit.
A 'subject to financing' clause is a type of condition precedent (or 'subject clause') that protects the buyer. If the buyer makes genuine, reasonable efforts to satisfy the condition but fails, the condition is not met, and the contract does not become firm and binding. Consequently, the contract is terminated, and the deposit is usually returned to the buyer.
Question 3: In a rising real estate market in BC, a seller accepts an offer but later refuses to complete the transaction, hoping to sell to another party for a higher price. Which of the following remedies is a buyer most likely to seek from the court?
- Quantum meruit
- Specific performance (Correct answer)
- Rescission
- An injunction
Correct answer: Specific performance
Specific performance is a court order compelling a party to perform their contractual obligations. In real estate, since each property is considered unique, monetary damages may not be an adequate remedy for the buyer who wants that specific property. Therefore, a court may order the seller to complete the sale as agreed.
Question 4: What is the key difference between an 'assignment' and a 'novation' of a Contract of Purchase and Sale in Canada?
- An assignment transfers only the obligations, while a novation transfers only the rights.
- A novation replaces the original contract with a new one, releasing the original party from their obligations, whereas an assignment transfers rights but may not release the original party from their obligations. (Correct answer)
- An assignment requires the consent of all original parties, whereas a novation only requires notice to be given.
- A novation is used for commercial properties, while an assignment is used for residential properties.
Correct answer: A novation replaces the original contract with a new one, releasing the original party from their obligations, whereas an assignment transfers rights but may not release the original party from their obligations.
A novation extinguishes the original contract and creates a new one, substituting a new party and transferring both rights and obligations, thereby releasing the original party (the 'novator') from liability. An assignment transfers the rights and benefits of the contract to a new party (the 'assignee'), but the original party (the 'assignor') often remains liable for the performance of the contractual obligations if the assignee fails to perform.
Question 5: A Contract of Purchase and Sale in British Columbia contains a clause stating 'Time is of the essence'. What is the legal significance of this clause?
- It is a standard, non-binding phrase suggesting the parties should act promptly.
- It allows for a reasonable grace period (e.g., 24-48 hours) for any missed deadlines.
- It is primarily used to determine the date for property tax adjustments.
- It makes all dates and deadlines in the contract strictly enforceable, and a failure to perform on time is a breach of contract. (Correct answer)
Correct answer: It makes all dates and deadlines in the contract strictly enforceable, and a failure to perform on time is a breach of contract.
The 'Time is of the essence' clause means that all deadlines stipulated in the contract are strict conditions of the agreement. Missing a deadline, such as for subject removal or completion, even by a short period, constitutes a breach of contract and can give the non-breaching party the right to terminate the contract.
Question 6: Which of the following scenarios best describes a breach of contract where the seller would be entitled to keep the buyer's deposit in a BC real estate transaction?
- The buyer discovers a minor, previously undisclosed issue during the home inspection and decides not to proceed, while the contract was subject to a satisfactory inspection.
- The buyer's financing is not approved, and the contract contained a subject-to-financing clause which the buyer could not satisfy despite good faith efforts.
- The buyer removes all subject clauses, making the contract firm and binding, but then refuses to complete the purchase on the agreed-upon completion date. (Correct answer)
- The property is significantly damaged by a fire after the contract is signed but before the completion date, and the contract is silent on the matter of risk.
Correct answer: The buyer removes all subject clauses, making the contract firm and binding, but then refuses to complete the purchase on the agreed-upon completion date.
Once a buyer removes all subject clauses (conditions precedent), the Contract of Purchase and Sale becomes firm and legally binding on both parties. If the buyer then fails to complete the purchase as agreed (e.g., refuses to pay the purchase price), they are in breach of contract. In this situation, the seller's primary remedy is often to terminate the contract and keep the buyer's deposit as liquidated damages.
BC Real Estate Trading Services Course Law of Contracts Questions and Answers
In British Columbia, which of the following is an essential element required for the formation of a legally binding contract for the purchase and sale of real estate?