Home Less than Advertised #303

May 01, 1999

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By Gerry Neely
B.A., LL.B.

Another favourable decision has been given in support of commission trusts for salespersons and cooperating agents, and their priority over the claims of a secured creditor. The secured creditor had registered a general security agreement under the Personal Property Security Act against all assets of the insolvent agency. The creditor was the former principal shareholder of the insolvent agency and the debt for which the security was registered was the balance of the unpaid sale price of the shares. The creditor's claim was that the assets included the commission monies.

Buyers from the former shareholder of the insolvent agency gave evidence that in calculating the value of the shares, commission monies were excluded from the valuation of the assets of the agency. There was ample evidence that the agency was a 100% house whose only income was from the fees, including administration and transaction fees, paid by the salespersons to the agency in exchange for services provided to them.

The insolvent agency had established a commission trust account into which it paid from its statutory trust account the commission due to the salespersons and from which the salespersons received the amount owed to them.

The judge was satisfied that the salespersons were independent contractors and that their commissions were held in a valid trust in their favour. Their claims had priority over the claims of the holder of the general security agreement.

The cooperating agents' claim was based upon an express trust in their favour, a trust found in the bylaws of the Fraser Valley Real Estate Board. The bylaws state that commissions are trust monies and that once the statutory provisions of the Real Estate Act had been satisfied, the monies in the agent's trust account were subject to a trust in favour of the other agents to whom a share of commission became payable.

The principal argument of the holder of the general security agreement was that a commission trust was a security interest that must be registered under the Personal Property Security Act to have priority over the general security agreement. The judge rejected that argument, following the Victoria cases referred to in Columns #288, #267 and #266.

While this decision is good news for licensees, the decision has been appealed.1

***

An agency and one of its salespersons found themselves in court because of a claim made by a buyer of a home in 1991 that he had suffered damages because, while the listing information described the area of the home as 1120 square feet, it was only 1032 square feet. The buyer's claim was that he paid $6,000 more for the house than he should have, he borrowed $4,000 more than he needed and as at 1998, the difference between houses with areas of 1120 and 1032 square feet was about $15,000.

The salesperson's evidence that the buyer never asked him to measure the house and there were no discussions about its size, was uncontradicted. The buyer's response to that was that he relied upon the "expertise and professionalism" of the agent rather than any direct statement about the size of the house.

The buyer lost. He was unable to establish that there had been a negligent misrepresentation. He had an opportunity to inspect the house and in fact the disclaimer attached to the listing information stated that the information should not be relied upon without independent verification. Finally he did not buy the house on a per square foot basis but because it met his requirements. The price paid was realistic, given the market.2

  1. Ogden v. Award Realty Inc., Reasons for Judgment February 23, 1999, SCBC, Vancouver.
  2. Sleightholm v. East Kootenay Realty Ltd., February 18, 1999, SCBC, Cranbrook.

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