In the recent case of Smith v Pisani [2001] SASC (9 March 2001) Justice Gray confirmed earlier authority to the effect that a "subject to finance" clause in a contract carries an implied obligation upon a purchaser to act honestly and reasonably when attempting to obtain that finance.

The clause at the heart of the dispute specified that the subject finance was to be for a term of 27 years at a rate not exceeding current interest rates, repayable monthly and otherwise on such terms and conditions as the lender requires.

The purchaser, Ms Smith, obtained approval for a loan in accordance with the clause but subsequently decided that she did not want to proceed with the purchase. She attempted to argue that the terms of the finance were not satisfactory to her and that the "subject to finance" condition had not been met and thus she was not bound to proceed with settlement.

The Court held that Ms Smith was obliged to accept the loan which she had been offered or obtain alternate finance as the terms of the loan offered were quite ordinary and commercially reasonable and did not impose any unfair restrictions upon her.

The Court upheld the judgment of the lower court which held Ms Smith liable to pay the deficiency in the subsequent sale price of the property, interest for the 16 months that it took the vendor to find another purchaser and the legal costs of the vendor.