Damages, Deposits; Separate Legal Representation for Vendors #26

By Gerry Neely
B.A. LL.B.

In an Ontario case which arose because of a purchaser's refusal to close a real estate transaction, the vendors were awarded S5,000.00 general damages for the "vexation, frustration, distress and anxiety, caused solely by the failure of the Defendants (Purchasers) to complete this transaction upon the date agreed upon." This was in addition to special damages totalling $28,247.00. The Court held that the purchasers knew that the vendors were purchasing another home and that they required the proceeds of the sale in order to complete that purchase, and that it must have been within the contemplation of the purchasers that their refusal to close the transaction would result in the mental anguish experienced by the vendors.

(Widdington v. Dickinson, 133 D.L.R. (3rd) part 2 page 472)

On another matter, an agent holding in trust a deposit which is larger than the commission, is often asked to pay the excess to the purchaser's solicitor prior to closing, so that the solicitor has in trust the full amount owed to the vendor by the purchaser, less the amount of commission payable to the agent. This amount should not be paid even with the consent in writing of the parties, unless the solicitor is asked to undertake to return it in the event that the transaction does not complete. A failure to do so may deprive the vendor of the benefit of having the large deposit if the purchaser defaults. Perhaps a better practice to follow would be to leave the whole of the deposit with the agent in trust until the agent is advised by the purchaser's solicitor that the transaction has been completed. At that time, the agent can then pay the balance of the deposit in excess of the commission, to the vendor.

Professional Standards Handbook D 10.

In the past, the purchaser's solicitor generally arranged to have the vendor attend at his office to sign the Transfer documents. The reason solicitors were prepared to follow this practice was that it was considered that the purchaser's solicitor owed no duty to the vendor, except in unusual circumstances. However, the trend of recent Court cases, is to impose a duty upon a purchaser's solicitor where that solicitor performs duties which would ordinarily be performed by a solicitor acting for a vendor. An example of the circumstances in which a purchaser's solicitor was found liable to a vendor was where the solicitor drew a mortgage in favour of the vendor to secure part of the unpaid purchase price. The vendor's mortgage proved to be valueless as security because a building mortgage had been placed on the property in priority to the vendor's mortgage. Default having occurred upon a subsequent sale arising out of the foreclosure proceedings, insufficient monies were realized to satisfy the amount owed to the vendor under its second mortgage. The Court found that even though there was no contractual relationship between the solicitor and the vendor, a fiduciary relationship was created by the circumstances. The failure of the solicitor to ensure that the vendor understood that his agreement to permit the actual registration of a first mortgage in priority to his second mortgage, was in accordance with the terms of the interim agreement, was a breach of the solicitor's duty to the vendor which gave rise to damages against the solicitor. This followed a Court of Appeal decision in which the Court held that a solicitor incurred a duty of care towards a Vendor when either he undertook to carry out the conveyancing work that ordinarily would be done by a vendor's solicitor, or he applied his special skills as a solicitor to assist another person

The result of these decisions and others has led an increasing number of lawyers to insist that the vendor be separately represented, even on a cash transaction. In these circumstances, and to avoid delays in completion, it would be prudent for licensees to advise vendors that they may be asked to retain their own conveyancer to represent them on their sale.

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