Mar 01, 1988

Fiduciary Duty Owed by Agent to Principal - When Does it End? #117


By Gerry Neely

On January 15, 1988, you put on MLS a listing expiring April 14, 1988, for the sale of a commercially zoned corner lot at a price of $360,000.00. A salesperson working for another agent brought an unconditional offer accompanied by a $25,000.00 deposit, for the sale of the lot at $325,000.00 The offer was accepted on February 1, 1988 and the sale was to close June 1, 1988.

On February 2nd, an individual who had seen your sign on the lot, a sign which had on it the asking price, called you directly to say that he wanted to buy the property. When you advised him that the lot had been sold, he stated that he had a particular use for the lot which would justify him paying $50,000 00 more than the asking price. At this point, what do you do? Do you decide to pay a visit to the purchaser to ask whether the purchaser is interested in a quick profit on a resale from which you can earn a second commission?

You justify doing this because having found a purchaser for your principal which is what you contracted to do, you owe him no further duty. In addition, by entering into the binding contract of sale, your principal has lost his right to deal with the property and can do nothing to take advantage of the second offer. You are worried if you advise your principal of the much higher price, that may induce him to break his contract with the purchaser and you will then be in breach of Section 27 of the Real Estate Act.

In the alternative, do you ask yourself whether your duty to your principal continues until the sale closes? If you answer yes to that question, you decide to advise your principal of the second offer, realizing that your principal has a number of alternatives. He may do nothing or he may attempt to renegotiate the sale with the purchaser. He might also try to avoid completing the sale by some lawful means, and this of course could be difficult for you in your claim for commission if your principal is successful.

The first alternative is attractive because it appears to protect the earned commission and may obtain a second commission. The second alternative exposes you to the risk of having to sue for a commission if your principal either tries to evade his lawful duty under the contract with the purchaser, or concludes that you badly underestimated market value.

If you chose the first alternative and decided that your duty ended when the binding contract was signed, then you made the wrong choice as far as an Appellate Court in Ontario is concerned.

The Court held that the agent's duty continued up to the completion of the sale or the expiration of the listing contract. The addition of the latter words in the Reasons for Judgment appears to create some uncertainty-is it the first or the last event to occur which ends the duty? However, since the listing in the Ontario case was to expire on April 30th, 1983, and the sale to close on May 27th, 1983, the Appellate Court must have meant that the duty would continue after the expiration of the listing contract, and until the sale closed. Presumably, if the sale did not close, and the listing expired after the date of closing, the duty would then continue until the listing expired.

The agents lost their claim for commission. They also were ordered to pay to the principal the amount of the second commission, as damages to the principal for their breach of fiduciary duty. Although the principal had asked for damages equal to the difference between the two purchase prices, the Court dismissed this claim upon evidence that the agents had no knowledge of the second offer until after the acceptance of the first offer.

Yorkland Real Estate Ltd. v. Dale , 60 O.R. (2nd) at p. 460.

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