Conditional Sale and Purchase by Vendor - Licensee's Duty to Vendor #118

By Gerry Neely
B.A. LL.B

An unconditional offer from a purchaser flush with funds is as welcome as the first spring day in Dawson Creek and as rare as a double-ended commission. In most instances, a person cannot afford to purchase another home unless that person's house has been sold. When a conditional offer has been accepted by a homeowner, the duty of the licensee preparing an offer by the homeowner to buy another house is to provide advice as to how to minimize the risk to which the homeowner in these circumstances is exposed.

This is the conclusion reached by a judge in a case where a vendor accepted a no-deposit offer which was subject to financing. This condition was to be removed by December 6, and a $3,000.00 deposit was to be paid by the purchaser into the trust account of the selling agent, within forty eight-hours after the removal of the condition. The vendor then made a conditional offer to purchase another home, the conditions to be removed on the same date, namely December 6. This offer was prepared by the listing agent who knew that the vendor couldn't buy unless her house was sold.

On December 5th or the morning of December 6th, the selling agent advised the listing agent that the purchaser intended to remove the condition on December 6, and was prepared to give the selling agent on that date, a certified cheque for the $3,000.00 deposit. The selling agent was aware that the vendor had to remove her conditions on December 6, and at the request of the listing agent, agreed to telephone the listing agent when the certified cheque was received. The purchaser removed the conditions, but the cheque received by the selling agent at 9:30 p.m. on December 6th was uncertified. Attempts to advise the listing agent of this failed because the messages left with the listing agent's answering service were not returned. The vendor and the listing agent removed the conditions in the vendor's offer to purchase, despite not knowing whether the vendor's sale was to proceed. Eventually, when it became apparent the purchaser couldn't afford to purchase the vendor's home, the vendor sued both the listing and the selling agents.

The judge held that the listing agent had a duty to advise the vendor of the financial risk she was running in removing the conditions in her offer to purchase, when she had no security in the form of a deposit upon the sale of her home. This information would have enabled the vendor to decide whether to renegotiate with her purchaser for an extension of time, or terminate her offer by not removing the conditions. The judge had no doubt that had the vendor been aware of the circumstances, she would have chosen one of these alternatives rather than remove the condition. He also held that the listing agent was negligent in not returning the selling agent's telephone calls when that arrangement had been made between them. Had the listing agent done so, the fact that the purchaser had not provided a certified cheque would have been a warning sign to the listing agent of the unreliability or lack of integrity of the purchaser.

Was the listing agent negligent in arranging for the removal of the conditions on both offers on the same day? The judge decided that by itself, this was not evidence of negligence. However, it is more prudent to have the deposit paid into trust by the purchaser, and the conditions on the sale contract removed before the date upon which the conditions in the purchase contract are to be removed.

The judge refused to accept the argument that the selling agent was negligent in not checking the financial capacity of the purchaser. The selling agent had confirmed that the purchaser's applications for mortgages had been made and everything seemed to be in order. There was no evidence that the selling agent knew that there was a financial risk involved in dealing with the purchaser. Had the selling agent been aware of some material information concerning the purchaser's inability to finance his purchase, which the selling agent failed to disclose, then the judge might well have found a breach of fiduciary duty owed to the vendor.

The listing agent was held liable in damages of $11,391.10.

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