Aug 01, 2003

Buyer's Agent Failure to Advise of Amendment in Counter-Offer #362


By Gerry Neely
B.A., LL.B

An Ontario buyer's agent, who submitted an offer to the seller's agent, discovered the importance of carefully examining the seller's counter-offer for amendments the hard way, at a personal cost of $50,000. The offer was subject to an inspection and to the "obtaining of a report satisfactory to the purchaser." This clause was included in the offer because the buyer noticed a large area of wet and soggy soil where the septic tank was located, even though there had been no rain for days.

The first offer was rejected because the offered price was too low. A second offer at a higher price was made two weeks later. The seller's counter-offer increased the price by $5,000 and added to the inspection clause, in his handwriting, the underlined words "obtaining of a report satisfactory to the purchaser that there are no structural defects."

The buyer accepted the increase and initialed the price change at the request of his agent, who did not mention the second amendment. It came to the agent's attention only after the buyer, upon receipt of an unsatisfactory report concerning the septic system, attempted to recover his $50,000 deposit. That failed and the buyer sued the agent for negligence.

A finding of negligence was inevitable. The agent's duty was to specifically draw the buyer's attention to any provisions in the agreement that were contrary to his interests or instructions. In addition to showing the amendment to the buyer, the agent should have explained its significance: that even if there had been a problem with the septic system, the amendment might prevent him from getting out of the purchase.

The agent tried to reduce his damages by claiming the buyer was equally liable because he failed to read the amended offer. The judge agreed that it would have been more prudent for the buyer to have reread it rather than rely on his agent; however, he had merely done what his agent asked him to do and was depending on him for advice.

The agent could not reduce his damages by saying the buyer should have caught his mistake. The agent was ordered to pay damages of $50,000.1

* * *

Another Ontario agent found himself in trouble when he and the owners of a motel and restaurant jointly prepared a brochure to list and market the business. It contained selective financial information, showing significant net operating income. In fact, known expenses were excluded, which turned a paper profit into an actual loss. The business, for which the buyer paid $399,000, was valued by an appraiser at $225,000 in a subsequent lawsuit against the owners and the agent.

The appraiser found that the statements were incomplete, inaccurate and unhelpful to the buyer. The agent's first defence was that he owed no duty to the buyer because he was the agent for the sellers. However, he had failed to provide the financial statements and documents required under Ontario law, the equivalent of s.39 of BC's Real Estate Act, which created a statutory duty owed by the agent to the buyer.

The agent's second defence was that the owners lied to him when they gave him the financial information. This defence failed because of case law in Ontario stating that agents must do more than just pass on information received from sellers. Instead they must take reasonable steps to satisfy themselves that the information is accurate.

This is a very broad statement of an agent's duty, but it applied in this case. Had the agent asked to see the audited annual financial statements, which were available, he would have known the sellers' information was false. The sellers and agent were ordered to pay the buyer $196,000.2

 1. Wemyss v. Moldenhauer, Wemyss v. Moldenhauer.
 2. Mohn v. Dreiser, 7 R.P.R. (4th), 52.

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