Knowlton was a real estate agent working to help a building developer (Wyder) sell floors of his planned building to Zurich Insurance Company. There were a series of letters passed between the two companies; the last stated that the terms of the contract were "subject to the execution of the lease". Troubles in development occurred, and the building was never constructed, therefore the lease documents were never completed. Knowlton claimed realtor's fees, however Wyder claims that the event on which the commission was payable (the lease) never occurred.
- Was the term stating that the terms of the contract relied on the signing of the lease a condition in the contract, or merely a statement of desires and the transaction had already been completed?
Judgment for the defendant.
Macdonald relies on precedent from Rossdale v Denny: "Where you have a proposal or agreement made in writing expressed to be subject to a formal contract being prepared, it means what it says; it is subject to and is dependent upon a formal contract being prepared". As the formal contract (lease) was never prepared in this case, the proposal never turned into a binding contract. Therefore the sale never took place, and the realtor cannot recover his fees.
When a contract states that its terms are subject to the signing of another formal contract, the original contract does not come into effect until the second formal contract has been formed.