On March 18, 2016, the British Columbia Court of Appeal released
reasons for judgment in Do v. Nichols, 2016 BCCA
128. This decision provides guidance on how to draft and
enforce tough provisions in a contract that can withstand penal and
The Court of Appeal disagreed with the Supreme Court's
finding that the contractual provisions at issue were penal and
unconscionable, and therefore unenforceable. In so doing, the
Court of Appeal found Mr. Do's petition for an order
nisi of foreclosure on a mortgage to be valid, and
declared the mortgage to be in default. It then referred the
matter back to the trial court so that the appropriate foreclosure
orders could be made.
At issue was the parties' complex purchase and sale contract
for a waterfront development property (the "Development
Property") owned by the Nichols on Pender Harbour.
Pursuant to the agreement, Mr. Do would purchase the Development
Property for $1,700,000 and the Nichols would take the necessary
steps to have the Development Property subdivided. If and
when subdivided, the Nichols had the option of purchasing one of
the newly subdivided lots. At issue in this case were the
additional terms that $500,000 would become due and owing by the
Nichols to Mr. Do if the Nichols were "unable or unwilling to
carry out the subdivision." To secure this payment, the
Nichols provided Mr. Do with a $500,000 mortgage on their home.
Mr. Do testified that the $500,000 mortgage was to act as a
guarantee that the subdivision would take place. Mr. Nichols
testified that he had no choice but to agree to the $500,000
mortgage on his home and other related terms as he had to strike a
deal or lose the Development Property to a mortgagee who was in the
midst of foreclosing on the Development Property.
The Court of Appeal referred to authorities confirming that the
doctrine of penalty only arises in the context of a breach of
contract, and is not designated to grant relief from a commercially
imprudent bargain. The contract at issue contemplated that
the Development Property might not be subdivided, in which case the
Nichols would be obliged to pay Mr. Do the $500,000. A breach
of contract was not required for the $500,000 to become
owing. As such, the appellate court found that the provision
requiring the payment of the $500,000 did not violate the doctrine
The Court of Appeal also found that the contractual provisions
at issue were not unconscionable. In order to set aside a
bargain for unconscionability, a party must establish: (a.)
inequality in the position of the parties arising from the
ignorance, need or distress of the weaker, which left him in the
power of the stronger; and (b.) substantial unfairness in the
bargain. The Court of Appeal found that there was no
substantial unfairness in the bargain since according to its
reading of the purchase and sales agreement, the agreed value of
the Development Property in a pre-subdivision state was not 1.7
million, but 1.2 million.
In this case, if the $500,000 becoming due and the foreclosure
had resulted from a breach of contract, the court may have granted
relief from the improvident bargain. That was not the case in
this instance as the $500,000 becoming due was not triggered by a
breach of contract. Where possible, deals should be
negotiated so that harsh consequences do not depend upon a breach
of contract to occur. The party enforcing the end of the
bargain should also be prepared to demonstrate the fairness of the
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
Under the Income Tax Act, the Employment Insurance Act, and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions or GST.
Under the Income Tax Act, the Employment Insurance Act, the Canada Pension Plan Act and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions.
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).