Commission – Purchaser’s Default #90

By Gerry Neely
B.A. LL.B.

You have a listing agreement with a vendor, a binding contract of sale is signed but the sale collapses because of the vendor's refusal to complete. The Courts will enforce your claim for commission even though the listing contract does not specifically state what your rights are where the vendor is in default. The reason for this is that the vendor by his own default cannot deprive the agent of the commission.

What position will the Courts take, however, where it is the purchaser who defaults and the listing contract fails to state what your rights to a commission would be in this instance? This question was decided by the Supreme Court of Canada earlier this year in a case that is of interest, because the listing contract referred to in the case is one that surfaces from time to time, generally in connection with exclusive or non-Board listings.

The listing contract entitled the agent to a commission of five per cent upon "any sale or exchange however effected during the currency of this agreement". It was to be paid on the date set for completion of the sale, if the agent "procured a valid offer on the terms and conditions. . .".

The offer to purchase subsequently signed by the vendor and purchaser contained the agreement by the vendor to pay the commission to the agent for the agent's "having procured this offer". The purchaser defaulted, the vendor sued the agent for the deposit of $15,000.00 and the agent counter-claimed for a commission of $22,650.00.

Was the agent entitled to a commission because he had found a purchaser ready, willing and able to complete at the time the binding offer was accepted by the vendor? Or did the agent's rights depend upon the purchaser completing on the closing date? Was the agent's right to a commission contained in the listing contract or in the offer to purchase or were they both consistent?

The Supreme Court of Canada interpreted "sale" to mean a completed sale. Thus, while the agent had earned a commission when he procured a valid offer to purchase, payment depended upon the purchaser being ready, willing and able to complete the sale. Since the purchaser had defaulted, the Supreme Court of Canada, by a four to three majority decision, held that the vendor was entitled to the deposit and dismissed the agent's counter-claim for commission.

The case was decided upon an interpretation of the words of the listing contract, and upon the ordinary understanding of a vendor that when he hires an agent, he expects to pay a commission only if his property is sold. If, therefore, an agent expects to receive a commission or part of it upon a sale that collapses through default of the purchaser, the listing contract must contain clear and unequivocal wording giving this right to the agent. Not only that, the part of the listing contract dealing with the consequences of a purchaser's default should be drawn specifically to the notice of the vendor in such a way that it is clear the vendor understands what he has agreed to pay the agent if the purchaser defaults. A number of Board MLS® contracts already contain a provision that if the purchaser defaults, the agent is entitled to the lesser of the deposit or commission. Perhaps this part should be capitalized or otherwise high-lighted so that it cannot be overlooked by the vendor.

One final point concerns the effectiveness of the commission agreement contained in the offer to purchase. The Court stated that the agent's right to a commission was decided when the listing agreement was signed. Those rights were not altered by the offer to purchase. Had there been no listing agreement, the agreement to pay commission contained in the offer to purchase would not have been enforceable, because the agent was not a party to that contract and there was no consideration flowing from the agent to the vendor.

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