Good Faith Doctrine Increases Obligations for Sellers
A recent Supreme Court of Canada ruling in Bhasin v. Hrynew (13 November 2014) may have some rather significant implications for sellers, at least those ones who sign listing agreements.
The Supreme Court of Canada just changed every contract in Canada. Now, all contracts include:
1) an obligation of good faith contractual performance, and
2) a duty to act honestly in the performance of contractual obligations.
So, good faith and honesty are in, and absolute, sole, unfettered discretion is out. No one is allowed to act unreasonably or capriciously, anymore.
Good faith and honesty were already part of a Listing Agreement, but the obligations only flowed one way. The agent had to be honest and act in good faith when dealing with his principal. Those fiduciary duties stretch back thousands of years.
The new Supreme Court decision now imposes honesty and good faith upon the seller, the client, the principal in the agency contract. Previously, this wasn’t the case.
So, what does this mean?
At the outset, this new common law principle deals with an “agreement” and not the negotiations leading up to an agreement. While for the purposes of contract, the “entire agreement” clause excludes representations, those that amount to fraud go to the root of the contract and negligent statements may fall under the law of torts.
Here, we are really dealing with honesty and good faith, once the Listing Agreement is in place.
There are several important matters resulting from the Listing Agreement. The seller has an obligation to perform the contract:
- To ensure the exclusive and irrevocable right of the real estate brokerage to act as the seller’s agent, throughout the currency of the listing,
- To offer the property for sale upon the price and terms set out,
- To respect the integrity of the parties who are introduced to the property,
- Not to deal with additional parties, who may be related or affiliated in some way to the proposed purchaser, as a means of thwarting the deal, and the obligation to pay commission,
- To pay the commission as set forth in the agreement,
- To refer enquiries to the agent,
- To permit showings of the property,
- To permit buyers to fully inspect the property,
- To permit a for sale sign to be placed,
- To permit a sold sign to be placed,
- Not to place ads personally,
- To ensure that there is proper legal authority to sell the property,
- To continue to advise the Brokerage of any relevant changes,
- To maintain adequate insurance,
- To ensure that the spousal consent will be signed or is not required,
- To execute authorizations as may be required by third parties to permit verification by the agent,
- To ensure successors and assigns are bound by the terms of the agreement,
- All representations are true to the best of the seller’s knowledge, information and belief,
- Should changes subsequently occur to forthwith advise the agent,
- Seller confirms an understanding of the agreement.
Now, the seller is bound to fulfill these duties in good faith with an honest intention to perform the contract. The corollary of all of this is that “end runs” are not permitted.
Brian Madigan LL.B., Broker