Seller’s Remedies Having Signed a Mutual Release

You can probably imagine that a Seller may be upset, sign a Mutual Release and then regret it afterwards. This would particularly be the case if the Seller felt that he received improper advice in respect to signing the Mutual Release.

So, consider the following scenario.

Sam lists his property for sale with Fred Flintstone. He sells his property to Bob for $1 million with a $50,000 deposit. There was no bidding war and two conditions are in the agreement: 1) financing and 2) home inspection.

Bob gets “buyer’s remorse”. He thinks he overpaid. He’s worried about carrying the payments and he’s worried about the commute to work and thinks he will have to buy a new car.

So, Bob wants out of the deal. It’s already a firm deal. This is what he does in order to get out of the deal:

1. He fails to deliver the deposit,
2. He doesn’t apply for financing, and
3. He doesn’t arrange for a home inspection.

Bob thinks that there is no contract. After all, he never paid the deposit.

Bob’s agent Barney Rubble prepares a Mutual Release and forwards it to Fred. Bob and the Barney’s Brokerage have already signed it.

Fred tells Bob:

1. There is no contract because the deposit was never delivered,
2. The property cannot be placed on MLS again without a Mutual Release,
3. The property cannot be sold to another Buyer without a Mutual Release.

Sam agrees, signs the Mutual Release, and then sells the property to John Smith for $950,000, three months later.

Sam’s Lawyer

Sam attends at his lawyer’s office for the purpose of closing the deal with John and casually mentions the original Bob deal and noting that it was unfortunate that he had to carry the property for another 3 months and that he netted $50,000 less.

Sam’s lawyer is likely to say that: he should never have signed the Mutual Release, the property could have be posted once again on MLS and that the property could have been sold to another buyer with the release.

Then, the obvious question: can I sue?

The answer, of course, is “NO”, Sam signed a Mutual Release; that takes Bob “off the hook”.

But, there is another potential lawsuit! That’s the one against Fred for misrepresentation and negligence arising out of the faulty advice.

How much would Sam get in that lawsuit? Basically, the damages would be the same amount that he would have received had he sued Bob in the first case.

Obviously, Fred should been more careful.

Brian Madigan LL.B., Broker

www.OntarioRealEstatSource.com