We talked last week about multiple representation, and how some people out there believe it is unreasonable, or impossible, for a real estate agent to work on behalf of both the buyer and seller in a transaction.
I mentioned how once upon a time, ALL agents were expected to work in the best interests of the seller, regardless of whom they were actually representing.
I mentioned a court case that “changed real estate forever,” and established the need for buyer agents.
This court case from 1991, which dealt with a real estate transaction from 1979-80, was the first to finally distinguish between the listing agent and the “selling” or buyer agent…
Some of you will find this incredibly interesting, and might suggest that this is the most insightful, informative blog I have ever posted.
Others will bore after reading the first few lines. Maybe some of you have already stopped reading.
But as I said at the onset, once upon a time, believe it or not, every licensed real estate agent, at least in theory, had a fiduciary duty to the seller.
Can you think of the implications?
If you, as a buyer, told the real estate agent that you hired, that you wanted to offer $1,400,000, but you would be willing to pay $1,500,000, then technically speaking, the real estate agent had a duty to inform the seller that you would pay more.
Can you imagine?
Before Knoch Estate vs. Jon Picken, every court case involving real estate held that the agent’s fiduciary duty was to the seller.
“Knock’nPicken,” as it’s referred to in real estate law, was the first to finally suggest that a “selling agent,” which is what we call a buyer agent or cooperating agent today, does not owe the same duty to the seller/vendor as the purchaser/buyer.
If you want to read the entire case from the Canadian Legible Information Institute, click HERE.
The following is a copy of the summary, and keep in mind that they use “selling agent” to reference a “buyer agent”:
Zadorozny and Faught, executors of Knoch Estate
v. Jon Picken Ltd., Royal Trust Corp. of Canada,
A. Mantella & Sons Ltd., American Invesco Ltd.,
Caterpillar of Canada Ltd., Jenkins, Picken, and Mantella
Indexed as: Knoch Estate v. Jon Picken Ltd.
4 O.R. (3d) 385
 O.J. No. 1394
Action No. 30/89
Court of Appeal for Ontario
Finlayson, Griffiths and Doherty JJ.A.
August 20, 1991
In August 1979, Guaranty Trust, the administrator of the estate of K, listed a property in Mississauga for sale with Royal Trust under a multiple listing at a listing price of $2,250,000.
The listing agreement provided: that any sale was subject to court approval; that the listing was to be distributed to members of the Real Estate Board as sub-brokers; and that the listing agent shall pay the sub-broker’s commission.
In mid-September, J, an employee of P Ltd., a real estate brokerage, learned about the listing.
At this time, J had already been retained by C Ltd., a manufacturer, to find sites to relocate its plant for which retainer C Ltd. had agreed that P Ltd. would be paid out of the commissions generated by a purchase.
J did not advise C Ltd. about the Mississauga property but instead brought the property to the attention of M, a developer, more likely to purchase immediately.
J helped prepare an offer from M Ltd.
The offer was delivered to Guaranty Trust on September 27, 1979.
J never had any direct contact with Guaranty Trust nor did he advise Guaranty Trust on any aspect of the sale.
On October 1, 1979, J wrote C Ltd. about the Mississauga property but did not identify the vendor.
On October 31, 1979, Guaranty Trust and M Ltd. signed an agreement subject to court approval. The selling price was $2,102,100.
Under this agreement, Guaranty Trust was entitled to continue to list the property until November 14, 1979. During this period, J did not advise C Ltd. that it could submit an offer directly to Guaranty Trust.
In late November, C Ltd. decided to purchase the Mississauga property.
On December 6, 1979, the court approved the sale to M Ltd. Later in December, C Ltd. met with P, the principal of P Ltd., and J to complete the terms of an offer.
Simultaneously, P and J were obtaining their own interest in the property from M Ltd. On March 18, 1980, one day before the closing of the sale by Guaranty Trust, M Ltd. agreed to resell the property to C Ltd. at a price of $3,475,000.
After both transactions closed, Guaranty Trust sued J for breach of fiduciary duty for failing to inform it or Royal Trust of the potential interest of C Ltd. in purchasing the Mississauga property.
The trial judge drew a distinction between listing agents and selling agents.
He found that M and J were not attempting to conceal anything from Guaranty Trust; rather, they were attempting to keep C Ltd. in the dark.
The trial judge found that J had breached no duty owed to Guaranty Trust and dismissed the action.
The successors of Guaranty Trust appealed.
Held, the appeal should be dismissed.
Per Griffiths J.A.: It is a question of fact in each case whether a fiduciary relationship exists.
The word “fiduciary” is derived from the Latin “fiducia” meaning “trust” so that, in general, the fiduciary relationship arises where one party places a trust or confidence in another or is dependent on the other in some significant way.
While listing agents are, generally speaking, fiduciaries owing the highest duty to the vendor, and under the multiple listing arrangement J was an agent of the listing agent and the recipient of a commission, this did not put J, a selling agent, into the position of a fiduciary.
The mere fact that a person is an agent does not subject him or her to fiduciary duties toward his or her principal.
While a selling agent may be the agent of the vendor for limited purposes and be obliged not to deceive or mislead the vendor, in the absence of a true fiduciary relationship, the selling agent will not be required to do more.
In some circumstances it will be a fine line whether a fiduciary relationship exists, and the facts of each case must be examined carefully.
Here, there was no evidence that Guaranty Trust relied upon or reposed confidence or trust in J.
Having submitted a binding agreement from one purchaser, J, as a selling agent, was not obliged to disclose to the vendor the potential interest of someone else.
Per Griffiths J.A. (Finlayson and Doherty JJ.A. concurring): J, M and M Ltd. were not liable on the theory that in conspiring to deceive C Ltd. they were also liable to Guaranty Trust.
This cause of action was not pleaded at trial and in any event was without merit.
The tort of conspiracy requires the conduct to be unlawful towards the plaintiff. Here the alleged conspirators never turned their minds to Guaranty Trust, let alone conspired to injure it.
Finally, this action could have been dismissed on the basis that the plaintiffs did not prove any damages. Assuming that there had been disclosure of C Ltd.’ s interest, it is unrealistic to think that C Ltd. would have offered more than the amount at which the property was listed.
Further, even if the interest of C Ltd. had been disclosed, it is probable that the sale to M would not have been denied court approval simply because of C Ltd.’s potential interest.
The appeal should be dismissed.
Per Finlayson J.A.: On the facts of this case, it was unnecessary to draw a distinction between listing agents and selling agents and their duty to the vendor.
In this case, J was the agent for the ultimate purchaser, C Ltd., with a duty to obtain the property at the lowest possible price. He failed miserably in the performance of that duty, but it makes no sense to suggest that he became the agent of the vendor by the act of submitting an offer to purchase to the agent of the vendor.
The character of J’s agency with C Ltd. cannot be changed by an act in furtherance of that agency.
The agency relationship with C Ltd. did not cease to exist simply because the multiple listing agreement treated all members of the real estate board as sub-brokers of the vendor.
The correct agency law analysis is that in any given real estate transaction, there can be an agent for the purchaser and an agent for the vendor, although it is possible that the court may find that a particular agent has become agent for both vendor and purchaser.
It is, however, not correct that all agents are always agents for the vendor.
Any practice, custom or understanding in the real estate industry to this effect cannot overcome the correct legal principles.
Moreover, even if this analysis of the principal and agent relations was wrong and J was an agent to Guaranty Trust, it did not follow that a fiduciary relationship was established.
J could not be the fiduciary for both the vendor and the purchaser and here the recognized indicia of a fiduciary relationship were not present.
Accordingly, the appeal should be dismissed.
Per Doherty J.A.: The evidence does not establish a fiduciary relationship between the selling agent, J, and the vendor.
It follows that J was not obliged to make the disclosures relied upon by the appellants to support their claim.
Accordingly, the appeal should be dismissed.
This was not an appropriate case in which to attempt an exhaustive statement of the obligations owed by a selling agent to the vendor or to determine whether a selling broker can be properly characterized as the agent for the vendor.
APPEAL from the judgment of the High Court of Justice (1988), 5 R.P.R. (2d) 207 in favour of the defendants.
Do you see the irony in this?
The seller is attempting to sue the buyer agent for not getting them more money.
It sounds crazy now, but back then, it was the norm.
“C” is Caterpillar Ltd., by the way. If anything, they should have sued “J” for not only plotting to resell the property to them for a higher price than they could have obtained it later on, but also for taking a piece of the ownership. This could easily be a case about disclosure.
But the most important part of this case is the eighth line from the top:
“J never had any direct contact with Guaranty Trust nor did he advise Guaranty Trust on any aspect of the sale.”
How can the seller sue the buyer agent when the seller never had any contact with that agent?
And then the most important line in the analysis of the judges involved:
“It is, however, not correct that all agents are always agents for the vendor.”
That’s when the real estate world changed forever.
But can you even believe what it was like before this case?
Or how many cases were argued, to opposite results, before this one?
Without Knoch & Picken, what would the real estate industry look like today?