Can a purchaser rescind a Contract of Purchase and Sale if the contract is not properly assigned by the either party before the completion date?

January 6, 2024 | By Divyanshu

There are frequent situations where purchasers and sellers get cold feet and may not want to complete a contract. Time is often of the essence in these agreements, and when an agent for the seller or the buyer fails to properly assign the contract before the completion date, the other party may have grounds to rescind the contract. This can lead to significant legal disputes.

In the blog, I would focus on the principles of privity of contract, agency, and how these concepts apply when an agent fails to fulfill their obligations. I’d also highlight how, in cases like these, a party may have remedies by way of repudiation.

I plan to support this view with relevant case law that demonstrates how courts have handled similar situations, helping to clarify the rights and obligations of both purchasers and sellers in such instances.

Background:

In the context of real property transactions, it is common practice that parties entering into a contract may be required to provide an assignment of contract in certain circumstances, particularly when there are obligations to transfer property interests. When a contract stipulates that time is of the essence, the timely provision of necessary documents—such as an assignment of contract—becomes critical for the completion of the transaction.

In any scenario, where the party (or the party’s representatives) fail to provide the required assignment of contract prior to the completion date, the opposite party can, as a result, assert that the contract is terminated. The failure to provide the assignment within the prescribed timeframe could be considered a material breach of the contract.

Key Legal Considerations:

A. Time is of the Essence

The contractual terms explicitly provided that “time is of the essence,” meaning that any delay in fulfilling obligations, such as the provision of the assignment of contract, can result in a breach. When time is of the essence, failure to meet deadlines specified in the agreement often gives the non-breaching party the right to terminate the contract or seek other legal remedies. This principle is well-established in case law and acts as a strict condition precedent in performance-based agreements.

In Samra Bros. Roofing & Insulation Ltd. v. Funk,1995 CarswellBC 253 (BCCA) at para. 20, the court made note of the essentiality of time in standard contracts of purchase and sale, and held that

The rule that when time is of the essence of a contract, a breach of a time clause is a breach of a condition of that contract, is subject to at least two exceptions:

(a) it does not apply when the party seeking to enforce the time clause contributed to its breach…; [and]

(b) it does not apply when there has been a change of the completion date after the execution of the contract and that and the other circumstances of the case make it unconscionable for the party seeking to enforce the time condition from doing so.

Court further noted that the more general rule is that a party to a real estate contract who acts in bad faith when performing the contract cannot benefit from having so acted.

B. Privity of Contract

I. Failure to Provide Assignment of Contract:

The contract [of purchase and sale] requires the seller to provide an assignment of contract prior to the completion date. Despite this contractual obligation, where the seller or the buyer fails to deliver the assignment in a timely manner, and as the assignment is a critical component of the overall transaction, this failure constitutes a fundamental breach of the terms of the contract. In cases where a party to the contract fails to perform a fundamental obligation, the other party may terminate the agreement.

Gupta v. Gill, 2024 BCSC 193, is a key case that highlights the issue of privity of contract in real estate transactions. In this case, the court addressed the assignment of a purchase contract to a corporate defendant and ruled that there was no “privity of contract” between the vendor and the assignee. As a result, the court dismissed the claim against the assignee. Since the assignee was not a party to the original contract, the court found it unjust to allow the corporate defendant assignee to be included in the litigation.

In British Columbia, it is well-established that if a party seeks to pursue a claim directly against the assignee—whether a corporation or an individual—and the assignee did not sign the Contract of Purchase and Sale, no privity of contract exists between the party and the assignee. As a result, any claim made against the assignee in such circumstances is likely to be dismissed.

Similarly, in Main Acquisitions Consultants Inc. v. Prior Properties Inc., 2021 BCSC 1449, the court affirmed that the failure of agents to properly assign the contract can impact the enforceability of the agreement. The court emphasized that without a perfected assignment, a party that is not in privity with the original contract cannot claim performance or pursue legal action against the vendor

In the recent case of Bene (Oval) Development Ltd. v. 1148538 B.C. Ltd., 2024 BCSC 2080, the Court addressed the issue of improper assignment of contractual rights and its effect on contract enforceability. The case highlights that when the conduct of the parties, including claims and counterclaims, creates uncertainty due to improper assignment, the courts may void the contract. The court’s analysis of whether the contract was void for uncertainty underscores the significant implications of failing to properly assign interests before the completion date.

II. Oral vs. Written Assignment of Your Contract: What You Need to Know?

In real estate transactions, one critical issue that can arise is the assignment of contract—specifically, whether it can be done orally or must be documented in writing. Can you assign your contract to a third party, such as family members or friends, through an oral agreement (also known as an “equitable assignment”), or does the assignment need to be formalized in writing (a “statutory assignment” under the Law and Equity Act, RSBC 1996 c. 253) with express notice given to the seller?

In British Columbia, the courts have generally been flexible, allowing for oral, written, or even partially oral assignments, but they stress the importance of following the express terms outlined in the contract, especially when it comes to notifying the seller. Understanding these nuances is vital when drafting a Contract for Purchase and Sale to avoid the costly and often unnecessary pitfalls of litigation.

In the case of Rakhra v. Jhutty, 2012 BCSC 882,the court held that the lack of proper notice rendered the assignment unenforceable, which is directly applicable to situations where agents fail to properly assign contracts before completion. The Court stressed on a written notice in this because the Contract itself required that from the parties. Therefore, buyer in this case could not have made an equitable (“oral”) or statutory assignment without a clear written notice to the seller. This case underscores the necessity of express written notice to the vendor for a valid assignment under s. 36(1) of the Law and Equity Act.

However, the court also clarified that if the seller receives notice in writing, their consent is not necessary for the assignment to be valid. In such cases, providing timely written notice before the completion date would eliminate the need for seller approval.

You can also give a notice of waiver to do away with the requirement of a written notice to the Seller. For a waiver to be effective, the waiving party must have both full knowledge of its rights and an unequivocal and conscious intention to abandon those rights: Dunn v. Vicars, 2009 BCCA 477 (B.C. C.A.) at para. 45.

On the other hand, the Court, in Gauraya v. Kalia, 2019 BCCA 367, gave effect to a verbal/oral assignment by the Buyer even when no notice was given to the Seller. The Court relied on the express terms of the Contract for Purchase and Sale to hold that the assignment of the Buyer right to purchase of the property was ana equitable assignment within common law and thus, valid between the assignor and assignees. The provisions of the Law and Equity Act did not override the expectations of the parties expressed in their agreement. This was due to the following provision in the contract that allowed the buyer to assign the contract without further notice to the seller, demonstrating how careful contract drafting can avoid disputes over assignment:

The Buyer reserves the right to assign this contract in whole or in part to any third party without further notice to the Seller.

Ultimately, whether you’re buying or selling real property, it’s wise to consult a lawyer to ensure your Contract for Purchase and Sale is legally sound and to prevent any future issues related to contract assignment.

Conclusion

In numerous cases, courts have held that a material breach of an agreement (such as the failure to provide a necessary assignment or document) can result in the termination of the contract, especially where time is of the essence. The non-breaching party is typically entitled to treat the contract as void and may seek damages for any losses suffered as a result of the breach.

If you’re navigating a real estate transaction and facing issues around the assignment of contract, it’s essential to understand your rights and remedies. Failure to meet time-sensitive obligations can have significant consequences for both parties involved, and legal precedents support the notion that a breach of assignment requirements can lead to contract termination.

Ensuring your contract is airtight is key to avoiding unnecessary headaches. Seeking professional legal advice can help you navigate potential pitfalls and secure a smooth transaction.

If you need help navigating the process or have other legal questions, our team is here to assist you on your case. Reach out today for professional legal advice tailored to your situation.

📞 Contact us today at 604.581.7001 to schedule a consultation.

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Disclaimer: This blog post is intended for informational purposes only and does not constitute legal advice. While we strive to provide accurate and up-to-date information, every legal situation is unique. For personalized legal advice tailored to your specific case, please consult with a qualified lawyer. We are happy to assist you with your legal needs, but this post should not be relied upon as a substitute for professional legal counsel.