The promise to purchase subject to a financing clause
It is not uncommon, especially in real estate transactions, for a promise to purchase to be subject to certain conditions. One of the most frequent is undoubtedly the obtaining of the necessary financing for the purchase.
But is it possible, in certain circumstances, for such a promise to survive beyond the stipulated deadline if no steps to obtain financing have been taken and if the beneficiary of the promise is left without news?
The Quebec Court addressed this question in 2023 in the case of Trépanier c. Piéraut1.
Relevant facts
On May 10, 2017, Piéraut accepted the promise to purchase from Cantin, an associate of Trépanier, for the sale of his land. They had a joint project to build a house and resell it for profit. Cantin was the only one involved in this promise, which was subject to a financing clause. This clause stipulated that if, within 60 days, financing had not been obtained, Cantin would notify Piéraut and the promise would become null and void. The promise did not specify the date for signing the deed of sale before a notary.
Pressed to begin their project before winter, Cantin and Trépanier managed to convince Piéraut to sign a power of attorney to Cantin so that he could represent him in all actions related to the land. This power of attorney was valid from the date of the promise to purchase until the date of signing the notarial deed.
The city was slow to approve the construction plans and, in the fall, Cantin and Trépanier decided to buy another piece of land. Cantin never took steps to obtain the necessary financing to purchase Piéraut’s land and did not inform him of the latest developments. For Piéraut, on July 9, 2017, the promise became null and void. In fact, it was only in February 2018 that he learned that Cantin and Trépanier had bought another piece of land. The following month, he sent them an email to point out that the promise to purchase was null and void given that the 60-day period had expired. He also offered to reimburse part of the costs incurred for the work carried out on the land.
A dispute arose between Cantin and Trépanier and, on February 3, 2020, they signed a clarification agreement to allocate the expenses related to the promise to purchase Piéraut’s land. Piéraut was not informed of this agreement despite the fact that his name appeared as if he were a party to it. Indeed, Cantin signed the document based on Piéraut’s power of attorney dated May 10, 2017. In addition to this clarification agreement, Cantin and Trépanier signed a transfer agreement whereby Cantin assigned his rights in the promise to purchase to Trépanier. All this took place without Piéraut’s knowledge, nearly 3 years after the signing of the promise to purchase.
On February 2, 2021, Trépanier sent a formal notice to Piéraut, urging him to sign the deed of sale before a notary within 5 days. Following Piéraut’s silence, Trépanier brought an action before the Quebec Court.
First Instance Judgment
In light of the evidence presented, mainly the testimonies of the parties, the judge ruled in favor of Piéraut: the promise became null and void upon expiry of the 60-day period. In his judgment, he highlighted, in particular, Cantin’s statements that he did not have the financial resources to buy both pieces of land at once. Cantin also admitted that, for him, it was clear that Piéraut would not wait indefinitely to sign the deed of sale. He also pointed out that when he signed the transfer agreement of the promise to purchase, he did so to buy peace, at the insistence of Trépanier and in a hurry to end their now conflictual relationship. For him, it was clear that he could not transfer rights that he did not possess himself.
The judge disagreed with Trépanier, who claimed that Cantin had to notify Piéraut that the financing had not been obtained, for the promise to become null and void. According to the Court, such a scenario was contrary to the common intention, commercially unreasonable, and contradicted the very essence of the promise to purchase conditional upon obtaining financing2.
Court of Appeal Judgment
On appeal3, Trépanier essentially supports the first arguments as in the first instance, adding that the judge made errors in assessing the evidence and the credibility of the witnesses. However, according to the Court of Appeal, he failed to identify any manifest or decisive error of fact or law justifying the appeal. He claimed that the judge failed to address his argument based on Section 1710 of the Civil Code of Quebec, which states that “a promise of sale accompanied by delivery and actual possession is equivalent to a sale”4, and that, consequently, he would be the owner of the land in question.
For a second time, the court sided with Piéraut, emphasizing that the first instance judge’s interpretation was consistent with the text of the promise, and the intention expressed by the parties. The Court also specified that Section 1710 C.C.Q. creates a rebuttable presumption which can be overridden by a contrary clause taken between the parties, such as a financing clause.
Conclusion
The Court of Appeal confirmed that a promise to purchase conditional upon obtaining financing becomes null and void upon expiry of the stipulated period, and that Section 1710 of the Civil Code of Quebec, which stipulates that a promise of sale accompanied by delivery and actual possession is equivalent to a sale, applies unless otherwise provided by an agreement.
Written with the collaboration of Annie Gauthier-Allard, law student.
1Trépanier c. Piéraut, 2023 QCCQ 1935.
2Id., par. 60.
3Trépanier c. Piéraut, 2024 QCCA 1034.
4 Civil Code of Quebec, L.Q. 1991, c. 64, s. 1710 (hereinafter : « C.C.Q. »).