Resale Before Closing #203

Jun 01, 1993

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

The question of when an agent's duty to his principal ends is still uncertain. The answer to the question becomes critical when the property is resold before the sale is to close, and the same agent is involved in both sales.

In an Ontario case, an owner of unlisted property accepted an offer and signed the usual listing agreement, which provided for payment of a commission of $25,000 to the agent who had introduced the purchaser to the property. Before the sale closed the purchaser was approached by another agent with an offer to purchase the property. The purchaser advised the first agent of this, but the first agent did not so advise the vendor. Negotiations then took place, in which the first agent was involved, resulting in the sale of the property to a third party and a further $12,500 commission to the first agent.

Since the terms of the contract allowed the purchaser to assign its interest, no questions were raised when the vendor was asked to transfer title to the third party. When the vendor found that the property had been resold at a profit, and that the first agent had received a further commission on the resale, the vendor sued for damages of $37,500.

In reaching a decision the judge referred to the agent's fiduciary duty, and the obligation to act in the "best good faith." His conclusion was that the agent's duty upon being advised of the second offer was to immediately inform the vendor. That would have given the vendor the right to pursue any options the vendor might have had. That obligation continued until the date of closing of the transaction.

He ordered payment of the second commission to the vendor, but not the first, saying that nothing the agent did affected its entitlement to the $25,000. (Compare this conclusion with the case referred to in Column # 17.)1

***

The decision in another Ontario case provides another example of why an agent who is asked to find property for someone should act either as the purchaser's agent, only where the property is not listed for sale, or know what to do when a fiduciary duty is owed to both parties.

An agent was asked by his brother and his brother's wife to find them investment property for which they were willing to pay between $250,000 and $300,000. The agent found a six-plex and after a number of discussions, the vendors signed a listing contract and then accepted an offer made in the wife's maiden name in trust to avoid a connection being made between the agent and his brother. The sale price was $285,000.

The vendors subsequently discovered the relationship and refused to close, leading to an action by the purchaser for specific performance and by the agent for commission. The trial judge decided that the agent was a double agent who owed fiduciary duties to both parties. The failure of the agent to disclose that the purchasers were his sister-in-law and his brother, was a breach of fiduciary duty.

He also said that if the agent had been the vendor's agent only, he would have had a duty to disclose that the purchasers were prepared to pay up to $300,000 for a suitable property. Since he was a double agent, he was really a mediator and his duty was not to disclose confidential information learned from the purchaser. He concluded that even if the vendors had been aware of the facts, they would have accepted the offer. He awarded commission to the agent and specific performance to the purchasers.

The Court of Appeal rejected the trial judge's reasoning and reversed his decision, stating that once a breach of fiduciary duty of this kind is established, the agent is not entitled to a commission. In addition, where a breach of fiduciary duty occurs, the agent can not attempt to prove that the sale would have completed had the material facts been know to the vendor.2

***

The exemptions referred to in Column #201 for a principal residence, recreational property or the family farm, are for transfers between a very wide category of related family members. Particulars of some of the limitations upon the principal residence exemption are referred to in Column #174.

  1. Coldumm Holding Company Ltd. vs. Montreal Trust Company of Canada and Sutej, Ontario Court of justice, (general division file #355955/89).
  2. Raso vs. Dionigi, Ontario C.A. (file #29/90).

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