Humber/Ontario Real Estate Course 4 Exam Practice

In an agreement with a condition precedent for new financing, when does a binding contract form?

1. As soon as the seller accepts the buyer's offer.

2. Whether the condition is fulfilled or waived, a binding agreement exists instantly.

3. A waiver is always part of any condition precedent.

4. Upon fulfilling or waiving the specified condition.

5. Before any conditions are acknowledged.

6. Once the financing process is initiated and not before.

The correct answer is: Upon fulfilling or waiving the specified condition.

In a situation involving an agreement with a condition precedent, a binding contract is formed when the specified condition is fulfilled or explicitly waived. This means that both parties are aware of the condition that must be met before the contract becomes enforceable, such as securing financing in this context. Until that particular condition is satisfied or waived, the agreement does not create binding obligations between the buyer and seller. The significance of the condition precedent implies that there is a necessary event that must occur for the contract to be fully realized. Therefore, the timing of the formation of a binding agreement is directly linked to the status of that condition. Once the financing is secured or the buyer decides to waive that prerequisite, the contract becomes fully effective and binding. Understanding this principle is crucial because it highlights the difference between simply having an agreement and having a legally enforceable contract. If the condition precedent is not fulfilled or waived, the contract does not take legal effect, which safeguards both parties from being committed until a key requirement is satisfied.