By Mark Weisleder in Toronto Star on Nov. 25th, 2013
I am often asked if every page or change on a real estate contract needs to be separately initialed by a buyer and a seller to make it legal. The short answer is no, but if it is initialled, it is better proof that all terms were clearly brought to the attention of the buyer or seller and agreed to.
Here is what can happen when things get missed:
In the spring of 2011, a company controlled by Sushil Batra and his wife were looking for a property in Surrey BC to open a store selling wholesale and retail cloth. He became interested in a 2 acre piece of land owned by a company controlled by Satish Kumar. An offer was presented on June 28, 2011, and was open for acceptance until June 30, 2011 at 9 pm. The price was negotiated back and forth and finally agreed at $4,000,040, with a deposit of $100,000, closing on July 28, 2011. The deposit was supposed to be paid within 48 hours of acceptance.
In the original offer by Batra, it stated that the deposit would be paid to Century 21, the real estate brokerage, in trust. When it was signed back and accepted by the seller, the words "Century 21" were removed and replaced with "direct to seller." The words "in trust" were not removed. This clause was initialed by Mr. Kumar, the seller, but not by the buyer Mr. Batra.
The deposit was paid to the real estate brokerage on July 2, 2011, not to the seller. Batra later found out that Kumar had sold the property to someone else on July 14, 2011 and completed the deal on July 21, 2011. Batra buyer sued for damages of $300,000, which were as outlined in the agreement itself if the deal did not close because of the fault of the seller. The seller took the position that there was no deal with Batra's company because the deposit was paid late and to the wrong party. In addition, since the deposit language change was not initialed by Batra, the contract was void.
The judge disagreed. In a decision dated June 21, 2013 out of the BC Supreme Court, Madam Justice Barbara Fisher decided that even though the deposit clause was not initialed by the buyer, it did not result in the contract being void. She stated further that even if the parties were not in agreement on this issue, there was a binding contract, as the parties had agreed on the essential three elements of the contract, namely the parties, the property and the price. This was the principle laid down by the Supreme Court of Canada in the case of Mckenzie v Walsh in 1920. She also noted that the words "in trust' were not deleted by the seller. So even if there was no final agreement on where the deposit would be paid, it would not make the contract void.
When contract terms are ambiguous, a judge is permitted to hear evidence from the people involved in order to correct any ambiguity. It was clear from the decision that the judge preferred the evidence given by Mr. Batra, the buyer, over the evidence of Mr. Kumar, the seller.
The main lessons from this case are that although a contract can be fixed sometimes if certain terms are vague or not properly agreed to by everyone, it makes much more sense to make sure that all contract changes and pages are initialled by both the buyer and the seller, so that there is no confusion or unnecessary legal expenses later. In addition, do not try to cancel any contract before obtaining legal advice.