Oct 20, 2008

Commissions and the Power of the Seal #424

Oct 20, 2008

Commissions and the Power of the Seal #424

By Edward L. Wilson

Occasionally one hears of a lawyer handling a closing, refusing to pay the REALTOR® their commission out of the purchase proceeds based on instructions from their client. What’s the impact of this action?

In Clause 24 of the BCREA-Canadian Bar Association Contract of Purchase and Sale, the seller authorizes and instructs the buyer and anyone acting on the buyer’s or seller’s behalf (i.e., the conveyancing lawyer) to pay the commission out of the cash proceeds of the sale to the cooperating and listing agents. It should also be noted that, in several places, the contract is expressly stated to be executed under seal.1

Now and then, the question has arisen whether this direction is binding on the conveyancing solicitor who isn’t a party to the contract, such that they cannot ignore the direction, even if their client specifically instructs them not to pay the commission. Will the solicitor be liable to the REALTOR® for failure to pay the commission in such a case? 

This issue has been addressed in two Ontario cases. In the first case,2 a clause in the Agreement of Purchase and Sale provided that: “I [the seller] hereby irrevocably instruct my solicitor to pay direct to the Agent any unpaid balance of commission from the proceeds of the sale.” The seller instructed the conveyancing solicitor not to honour this direction, and the solicitor did not pay the funds to the agent.

The agreement provided for a seal to be affixed, but in fact no seal was affixed in this case. At the trial level, the court found that the direction in the agreement, coupled with the receipt of the closing funds, constituted a “complete equitable assignment of the balance of the commission,” thereby engaging the solicitor’s liability for failure to honour the assignment. 

The Divisional Court overturned the trial decision finding that the addition of the irrevocable direction in the agreement was made without any new or additional consideration flowing from the agent to the seller and, as the seal wasn’t attached, the seller was free to withdraw his direction. The solicitor was bound to comply with his client’s instructions without incurring liability to the agent.

In the second case,3 the court considered the same issue with a different result. The agreement contained a similar irrevocable direction to pay the agent the unpaid balance of the commission, but it included a printed black circle that resembles a seal and, under that circle, the word “(Seal).” Above the signature of the seller’s principal, were the printed words “In Witness Whereof I have hereunder set my hand and seal,” and to the left were the words “Signed, Sealed and Delivered in the Presence of.”

The transaction closed, but the seller instructed its solicitor not to pay the commission. The court considered the earlier case but referred to the fact that there was no seal contained in the agreement signed by the seller. In the case before the court, the seal was included in the form. 

Given the direction in Clause 24, and the fact the BC contract is expressly stated in three places to be executed under seal, it’s likely that if a BC court were to consider a case based on a transaction using the BC contract, the court may very well follow the decision in the more recent Ontario case. Lawyers who follow their clients’ instructions and pay the proceeds out to the parties without payment of the commission put themselves at risk.

 1. See Clauses 21, 23 and 24.
 2. Family Trust Corp. v. Morra et al.(1987), 39 D.L.R. (4th) 762 Ont. Div. Ct.
 3. Re/Max Garden City Realty Inc. v. 828294 Ontario Inc.(1992), 9 O.R. (3d) 787.

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