Mortgage Broker’s Exclusive Contract Unenforceable #396

By Gerry Neely
B.A. LL.B.

It’s a rare occasion when one’s expertise is a negative factor influencing a judge’s decision. That happened to an experienced mortgage broker and his client, an owner of two apartment properties and a REALTOR® for 25 years. The owner advised the broker that he needed to $2.3 million to refinance a maturing bank loan of $2.17 million and other debt.

The broker prepared an exclusive contract entitling him to a fee of 0.5 per cent if he arranged a loan to be secured by the properties. The owner signed this, despite the omission of the loan amount. The broker obtained a loan commitment for $2.15 million, which the owner rejected. Instead, he refinanced the bank mortgage and obtained financing elsewhere for the remainder of the debt.

The broker sued in Small Claims Court, claiming that the commitment he obtained fulfilled the terms of the contract. In addition, since it was an exclusive contract, the refinanced loan entitled him to a fee even though it wasn’t obtained through his efforts. The owner’s defence was that the broker knew he had to obtain a commitment of $2.3 million to earn his fee.

Both men were experienced in financial matters, both missed the critical term and both were victims of their own carelessness. The judge rejected the broker’s claim for $10,000, the maximum allowed in Small Claims Court, because of his preparation of the contract. However, he acknowledged the owner had received useful information and ordered him to pay $3,875 to the broker on a quantum meruit basis.¹

Small Claims Court – arrest of debtor ordered

Obtaining a judgment in Small Claims Court is one thing, but collecting is another. There are several processes to assist in collection—the ultimate one being the arrest of the debtor. That was asked for in a case where judgment was obtained in 2002. All attempts at getting the debtor before the court for an examination of his ability to pay failed because the debtor avoided service of the summons.

Finally, in April 2005, a warrant for the debtor’s arrest was issued to the sheriff with instructions not to release the debtor until either payment was made or security for payment was posted.²

Municipal bylaw enforced – contempt of court order

Municipalities have the means to enforce bylaws, particularly with respect to safety issues. Extensive renovations to a commercial/residential two-storey building were being done without a building permit, and continued in spite of five stop work orders.

The city successfully applied for an injunction preventing occupancy of the residential units and demolition of the work done without a permit. The injunction was not complied with, the owner was held to be in contempt of court and was fined and ordered to pay special costs.³

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