Legal Blog

Commission

There are times when we review a case and wonder why it was prosecuted or defended. The facts seem clear; the law is completely clear; and one or other of the parties was doomed to lose from the outset. We realise, however, that often the facts were not necessarily clear at the time of trial; they only appear to have been clear after the judge makes the findings of fact.

However, after analysing the case of Century 21 Success Inc. v. Gowland [2003] O.J. No. 4645 (S.C.J.), we believe that we have found one of those rare cases in which there was going to be an obvious loser from the outset.

Deal Failure

The plaintiff was a real estate broker. It had a listing agreement with the vendor corporation in which the agent would be paid a 6% commission on the completion of the sale of the vendor’s raw, but subdivided, land. The vendor also would be liable to pay the commission, if the sale aborted because of the default or neglect of the vendor.

The vendor entered into an agreement with the purchaser for the sale of the land for $500,000, the sale to be completed 11 months hence. The purchaser waived the conditions in the agreement and the broker started to count its money from its commission.

Unfortunately, just before the closing date, the purchaser informed the vendor that it did not have sufficient funds to complete the transaction.

The vendor decided that it would not be able to “get blood from a stone” and agreed to let the purchaser out of the transaction and forfeit its $20,000 deposit. The purchaser signed the release just before closing and the vendor signed it just after closing.

The broker wanted its $30,000 commission and sued the vendor.

Contract

Based on these facts, as far as we are concerned, the broker had to lose. The Supreme Court of Canada’s decision in Liebig v. Leading Investments [1986] 1 S.C.R. 70 is almost dead on point. In that case, the Court held that even when the listing agreement only talked about “procuring the offer”, the commission was only payable when the real estate agent found a purchaser who was ready, willing, and able to close the transaction. The Court then found that no commission was payable because the transaction in that case failed due to the actions of the purchaser.

The judge in the Century 21 case mused that the wording in the listing agreement in the case before him may well have come about because of the Leading Investments decision.

The plaintiff argued that, by giving the release, the vendor improperly allowed the purchaser to abort the transaction and therefore the vendor was also at fault. The judge gave short shrift to that argument, noting that there is no obligation on a vendor to take further legal action if a purchaser wrongfully withdraws from a real estate transaction.

Unjust Enrichment

The broker then argued that the vendor had been unjustly enriched and that the broker should be compensated on a quantum meruit basis. Before there is unjust enrichment, however, the claimant must prove, among other things, that there is no juristic reason for the enrichment. A contract is a juristic reason. As soon as there is a contract governing the relationship, there can be no quantum meruit.

The purpose of a real estate contract on a commission basis is to reward the agent far more than the value of its time and expenses if the property is sold and the transaction is closed, but to give the agent nothing if the property is not.

The contract was specific about the entitlement or non-entitlement to commission and therefore, as the judge stated, “The case must live or die by the listing agreement.”

Personal Liability

The broker had sued not only the corporate vendor but also its sole director and officer. The judge dealt with this aspect of the action in five lines. He found that the individual was acting on behalf of the vendor and signed the listing agreement in that capacity.

We initially thought that the broker just threw in the individual for good measure and did so improperly. However, it could be that the individual signed the listing agreement without using the word “Per” and this might have been enough for the broker to join him. We cannot otherwise understand what cause of action the broker would have had against the individual. We can see no tort. The broker might have claimed inducing breach of contract, but that allegation will be successful against a director only if there is a separate actionable wrong.

In any case, this issue was made moot by the judge’s decision against the broker in favour of the vendor.

Costs

We know of a case in which the judge was unimpressed by the tactic of improperly joining the individual director or shareholder and awarded solicitor-client costs for the insult. We do not know at this time what the judge in the Century 21 case awarded for costs.