Damages in Lieu of Commission #62

By Gerry Neely
B.A. LL.B.

The advantages of a listing agreement which fully describes the basis upon which a commission is earned and the obligations of the owner toward the listing agent, in order to support a claim for commission or for damages in lieu of commission, are illustrated by the facts of the following case.

In a foreclosure action brought by a first mortgagee, a second mortgagee was given exclusive conduct of sale with liberty to list the property with an agent. An exclusive listing agreement was entered into with an agent which provided that a commission would be paid if a binding contract was entered into during the term of the exclusive listing or if the agent's efforts were the effective cause of a binding contract of sale being entered into at any time. In addition, if someone was introduced to the property during the term of the exclusive listing agreement, who was ready, willing and able to purchase on the terms contained in the listing agreement or who purchased on other terms, the agent was entitled to a commission even if he had not produced the introduction.

The listing agent actively marketed the property but had not found a purchaser by the date the second mortgagee's right of conduct was to expire. Three days after the date the conduct of sale expired, the second mortgagee accepted an offer from a company whose principal directors had seen the property during the period of the exclusive listing given to the agent. The serious negotiations which led to the acceptance of the offer had taken place over a period which began about eight days prior to the expiration of the listing. A week later, the Supreme Court granted an Order that the offer be accepted, and a few weeks later the agent discovered that the property had sold for $1,750,500.00. The agent sued for commission of $89,285.00. The Court held that the agent's claim for commission could not succeed for these reasons: (a) the purchaser had neither entered into a binding contract of sale during the term of the listing agreement nor was the agent the effective cause of the sale; (b) although the purchaser was introduced by the second mortgagee to the property during the term of the exclusive listing agreement, an earlier Court of Appeal decision held that the agent's right to claim a commission upon this basis depended upon both the introduction and the purchase taking place during the term of the listing agreement.

All, however, was not lost. The listing agreement contained the following sentence which no doubt is in all Board listing contracts:

"I further agree to refer to you all enquiries for purchase of the property and communicate to you all offers of purchase which may be received during the term of this exclusive listing agreement."

It was clear that the second mortgagee was in breach of his agreement to refer all enquiries for the purchase of the property to the agent. In spite of this breach, the agent's right to recover damages depended upon whether the judge could conclude that on a balance of probabilities a binding purchase agreement could have been reached during the term of the listing agreement rather than three days after it had expired. The judge decided that the licensee, who was an experienced real estate sales agent, would have been able in a shorter period of time than it took the second mortgagee and the purchaser, to prepare an agreement acceptable to the first mortgagee and in a form that could be presented to the Court for approval.

His decision, then, was that the agent was entitled to damages but not for the full commission of $89,285.00. The damages were reduced to four per cent of the gross selling price, or $51,000.00. The rationale behind this reduction was the evidence of the agent that it would have been prepared to negotiate a lower commission, having regard to the fact that the second mortgagee did locate the purchaser.

1.

Wolstencroft Realty Corporation v. Ashcroft Holdings Ltd,S.C.B.C., 33 R.P.R. 206.

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