Nov 01, 1988

Section 36 of the Real Estate Act; Backup Offer, appeal of (Col. 89) #127


By Gerry Neely

This Section prevents a licensee from retaining a commission which is based upon the difference between the price at which real estate is listed for sale, and the actual price obtained. The Nova Scotia Real Estate Brokers Licensing Act contains a similar provision which a salesman there hoped did not apply to the following facts.

An apartment owner told a salesman that if he brought an offer of at least $475,000, the owner would pay the agency for which the salesman was working a commission of $10,000. In addition, the owner said that the salesman could keep anything in excess of $475,000. An offer of $485,000 was accepted, the commission of $10,000 was paid, and the salesman started to have second thoughts. This led to the salesman offering to take $5,000 instead of $10,000 and an eventual compromise at $2,000.

This amount was never paid, and the salesman sued successfully. The trial judge concluded that while the original agreement to pay the additional amount was illegal and unenforceable, the subsequent agreement to compromise the commission created a new and enforceable contract based upon the salesman's agreement not to sue for the $10,000.

This decision was appealed successfully by the owners to the Court of Appeal of Nova Scotia. It stated that since the original agreement was prohibited, the Court would not enforce a subsequent contract based upon the illegal contract made by the salesman with the owner.

Anyone contemplating an agreement of this kind in British Columbia would also be in breach of Section 33 of the Real Estate Act.1

* * *

Column 89 discussed the facts of a case in British Columbia where the owner accepted a backup offer and then agreed to amendments to the first offer accepted by him. The backup offer was "subject to the non-completion or collapse of the offer to purchase from...." Although the changes to the first offer only involved an increase in the deposit and an extension of the date for completion, the trial judge held that they amounted to a renegotiation of material terms of the first contract that resulted in its cancellation or non-completion. Damages of over $150,000 were awarded to the backup purchaser.

That decision was appealed successfully by the owner. The Court of Appeal agreed with the owner's argument that the changes did nothing more than to amend the original offer (in certain non-fundamental details) while affirming the continuing existence of that contract. This decision depended upon the interpretations of the meanings of "collapse" and "non-completion." Had there been different wording in the backup offer then the award of damages against the owner might have been upheld. That is why it is important to use wording which will protect the owner. An appropriate clause is contained in the B.C.R.E.A. Clauses and Phrases Manual.2

 1.Metlege v. Ryan, 113 DLR (3d) p. 248.
 2.B.D. Management Ltd. v. Tajico Holdings Ltd., B.C. Court of Appeal CA006350.

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