The Case of the Absconding Apparent Attorney or, Whose Liability #45

By Gerry Neely
B.A. LL.B.

How would you decide which of two innocent parties, the vendor or the purchaser, should bear the loss which arose when the solicitor acting for the purchaser gave the real estate agent an n.s.f. cheque for the commission of $4,350.00, and then disappeared?

By the agreement signed by the parties, the vendor authorized the purchaser and anyone acting on his behalf "to pay the amount of the commission to the agent out of the cash proceeds of the sale". The vendor then signed a statement of adjustments which authorized the purchaser's solicitor to pay the agent's commission. The vendor believed that the purchaser's lawyer was acting in the vendor's interest and that the arrangement for payment of commission was made for the convenience of the parties. The purchaser gave no thought to the commission arrangements. Finally, both parties assumed that the solicitor was a member in good standing of the law society. Unfortunately he did not hold a certificate to practise and the Law Society insurance did not cover his loss. The vendor paid $3,500.00 to the real estate agent to settle his commission claim, and then sued the purchaser. The dialogue which follows summarizes their arguments:

V: "You still owe me $4,350.00 and I want it now.

P: Forget it, I paid the full purchase price to my solicitor.

V: Yes, but he was your agent, not mine. You appointed him. You were happy to have him accept on your behalf my transfer of title but now you are not prepared to accept responsibility for his failure to pay me the full sale price. Is that fair?

P: Well, is it fair that you want me to pay 105% of the purchase price? You signed the interim agreement and the statement of adjustments and by doing so, you appointed him as your agent to pay the commission. As his principal for that limited purpose, you must bear responsibility for his actions.

V: No, no! It is true that when I authorized your solicitor to pay the commission directly, he became my trustee for that purpose. However he still remained your agent and any failure on his part to properly look after the money you gave him is your responsibility.

P: But look, when the transfer was registered, the money was no longer mine - it was yours, so that it's your money that was lost, not mine. He was your trustee and you must look to him to recover your loss.

V: Whether he held that money in trust for you or for me is immaterial. What is important is that as his principal, you had a duty to see that he lawfully disbursed the money you gave him. Since he failed to do so, you are still liable to me for the balance I haven't received. And more to the point, we wouldn't be in this mess if you hadn't selected him to act for you.

P: Well, on that last point only, I can agree with you."

The Court agreed with the vendor that the solicitor was the agent of the purchaser throughout. The fact that he was a trustee for the vendor for payment of part of the purchase price to meet the agent's commission, did not change the relationship of principal and agent between the purchaser and the solicitor. The court then held that as between two innocent parties, the party who placed the fraudulent person in a position to commit the fraud, must bear the loss. Judgment was given to the vendor the $4,530.000 rather than the sum of $3,500.00 paid to the agent, the court concluding that settlement of the commission claim was a matter apart from the sale and purchase agreement between the vendor and purchaser.

1.

Roeder v. Halicki and Clery,28 R.P.R. 61.

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