Special Circumstances for Listing Agents’ Commission #22

By Gerry Neely
B.A. LL.B.

Since the subject of this column, which was requested by the Legislative Committee of BCREA, is one which raises more questions than it answers, it would be appropriate to start it by saying,

"HELP WANTED - a reference to the report of a decision of a British Columbia Court which might settle whether a listing agent is entitled to a commission in the following circumstances:

"An agent receives a listing from an owner who unhappily anticipates that the arrears of payments due to the first mortgagee will result in a foreclosure action which will deprive the owner of his equity in the property. A foreclosure action is commenced and a second mortgagee is given conduct of the sale of the property during the redemption period set by the Court. The order for the conduct of sale gives the second mortgagee authority to list the property for sale with an agent chosen by the second mortgagee. That agent becomes the effective cause of the sale when an offer made by a purchaser obtained by the second agent is approved by the Court during the period of the listing given to the first agent. The second agent receives the agreed-upon commission out of the proceeds of sale. The first agent sues the owner for commission, and while the owner acknowledges that the first agent spent time and money in advertising, he states that he should not be required under the circumstances to pay two commissions."

The facts described are somewhat unrealistic in that a defaulting mortgagor generally has no funds to pay a commission. They are intended to raise the question of whether or not a listing agent should continue to expend time and money when conduct of the sale has been given to someone other than the owner and another agent has been given a separate listing.

If this question has been dealt with by a British Columbia Court, the results have not been reported in readily identifiable manner in any of the usual reporting services. In part, this is because motions in foreclosure actions are made in Chambers and are therefore rarely reported, and in part because the factual circumstances vary widely from case to case. In addition, discussions with a number of lawyers with substantial foreclosure practices, revealed an awareness of the problem but no answer supported by the authority of a Court decision.

The underlying reason for the Court agreeing to a payment of commission to the second agent, is that in a foreclosure action the mortgagor is liable for the expenses of a sale or of an aborted sale. If the conduct of sale is given to, say, a second mortgagee, the second mortgagee is entitled to incur reasonable and proper expenses which are chargeable against the interests of the mortgagor. Those expenses have been held to include payment of an agent's commission and, as a result, an order providing for the conduct of a sale also authorize the person having conduct to list the property with an agent and to pay that agent the customary commission.¹

As always, the question of the right of the first agent to a commission depends upon the terms of the listing contract given by the owner. In the facts recited above, no commission would be payable if a right to commission depended upon the first agent being the effective cause of sale. No commission might be payable even if the agent's right to commission arose upon "a binding contract of sale/exchange of the said property being entered into during the said period." Does a "binding contract of sale" mean only a contract entered into between a vendor and purchaser in the usual way, or does it include a forced sale approved by Order of the Court? Perhaps the best position in which the first agent can put himself is to accept a listing of property either under foreclosure or where foreclosure is imminent, only if the listing clearly states that a binding contract of sale shall include a sale approved by Order of the Court, and that the first agent shall be entitled to a commission whether or not the agent was the effective cause of sale. However, even this contract may be held to be unenforceable as being impossible to perform where the Court has given exclusive conduct of sale to another party who has then listed the property for sale with a second agent. Again, the lack of reported decisions makes it difficult to predict what a Court will decide in any of the circumstances referred to in this paragraph, except to say that if the agent claiming commission was not the effective cause of sale, the Court will lean against an interpretation which would effectively compel an owner to pay two commissions.

In the midst of these ifs, ands, buts and perhaps, there is at least one positive word of advice available to the first agent when the foreclosure action is commenced. Since the owner will be joined in the action, he is entitled to appear, either in person or through his lawyer, to argue that the first listing should be continued. The agent should urge the owner to do so. In some cases heard recently in Victoria, that argument has led the Court to conclude that it will not interfere with existing contractual relations by giving conduct of sale to another party to the action. Since an owner may use this argument to try to delay the sale of his property, the success of it will depend upon other facts, one of the most important being whether the listing price is unrealistically high.

The answers to these questions may lie in your lawyer's files, to be disclosed if you decide to discuss these questions with him. Any information you obtain which is forwarded to B.C.R.E.A. or to me, will be followed up and, if useful, it will be reported in a subsequent column.

1.

The Royal Trust company v. Countrywide Construction Ltd et al,24559/73, Vancouver Registry.

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