Personal Property Security Act - Commission Trust; Contract of Purchase and Sale (Paragraph One) Restrictive Covenant; Third Party Approval of Plans Not a Minor Defect of Title #267

By Gerry Neely
B.A. LL.B

The last column No. 266 ended with the suggestion that licensees with independent contractor contracts containing commission trusts, might wish to file a Financing Statement in the Personal Property Security Registry in Victoria, against the possibility that the Supreme Court of British Columbia may conclude that the commission trust creates a security instrument for which a Financing Statement must be registered to establish priority over the claims of other creditors.

Unlike the Land Title Office, where the originally executed mortgage must be filed, the Personal Property Registry will not accept the contract signed between the agent and the salesperson. Instead the Financing Statement serves as notice of the existence of a security instrument which might affect potential buyers or other creditors.

The information contained in the Financing Statement enables a prospective buyer or creditor to contact the debtor or creditor to obtain the details of the loan or the security. The form requires a minimum of information, one of which is that the collateral to secure the trust is the commission money owing to the secured party (salesperson) by the debtor (agent).

The cost of registration is $5 for each year the Financing Statement is to remain on the registrar. An additional $5 is charged if the information is entered by the registry, rather than by the individual who files the Financing Statement. Registration of the Financing Statement does not require the signature or consent of the agent.

Registrations can be done through the government agents’ offices throughout the province; in person at the registry on Broughton Street in Victoria, or by mail addressed to the Personal Property Registry, PO Box 9431, Station Victoria, Provincial Government, Victoria, B.C., V8W 9V3. To avoid delays or returned statements the information added to the Financing Statement should be typed, but if printed, be legible because if there is any question as to what has been printed, the statement will be returned.

It is premature to decide whether it is necessary to establish a separate commission trust, although the decision of the Supreme Court of British Columbia raised in column #266 has been given.

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Another decision involving section one of the Contract of Purchase and Sale, which allowed a buyer to avoid completing the purchase of a $1,223,000 property because the seller was unable to provide title clear of a restrictive covenant in favour of the Canadian Pacific Railway. The 1945 restriction required approval of the architectural and site designs by the CPR. The CPR had agreed to provide a release, but it was unavailable for registration on the closing date.

The conclusion reached by the judge was that the CPR, at least in respect of this particular restrictive covenant, was not a utility. Therefore, it did not fall within the restrictive covenants in favour of utilities and public authorities, which are permitted by section one to remain on title.

The seller had argued that this was a minor defect of title, which would not seriously interfere with the buyer’s use and enjoyment of the property. The judge disagreed and using the analysis discussed in column No. 245, stated that any restrictive covenant requiring the approval of a third party as to how and what to build is neither minor nor insubstantial. He placed the onus squarely upon the seller to know his own title and to know what needed to be cleared from it.

The reasons for judgment do not indicate whether a real estate salesperson was involved in the sale of the property. If a licensee is acting in these circumstances and has searched the title, it would be prudent for the licensee to draw to the seller’s attention the existence of encumbrances which need to be cleared from title.¹

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