Indexed as:

Hammerschmidt v. Capannelli

Between

Anne Hammerschmidt, plaintiff, and

Capannelli Construction Limited and Business Ventures Inc.,

defendant

[2001] O.J. No. 2905

[2001] O.T.C. 550

106 A.C.W.S. (3d) 576

Court File No. 00-CV-185895

Ontario Superior Court of Justice

Hawkins J.

Heard: June 4-6, 2001.

Judgment: July 5, 2001.

(31 paras.)

Brokers -- Compensation -- Right to compensation -- Persons entitled to compensation -- Real estate brokers.

Action by the defendant Business Venture against the plaintiff Hammerschmidt for unpaid real estate commissions. A company named Capannelli Construction developed a condominium project. Hammerschmidt was a registered real estate agent. She was retained to market the units. Hammerschmidt and Capannelli devised a scheme to reduce commission costs. Hammerschmidt parked her agent's registration certificate with Business. Business was a real estate brokerage. This was done to keep the certificate alive. Hammerschmidt subsequently became a full- time, salaried employee of Capannelli. This exempted her from registration under the Real Estate and Business Brokers' Act. Hammerschmidt was owed $195,800 in commissions by Capannelli. The new owner of Business who was not party to this scheme claimed it was entitled to 35 per cent of these commissions.

HELD: Action allowed. Business was awarded judgment for $68,500. Hammerschmidt was not a salaried employee but an independent contractor. The scheme violated the Act. Business was registered as Hammerschmidt's employer. Once Hammerschmidt parked her certificate with Business she was not free to accept remuneration for real estate trading from anyone other than Business. Business was therefore entitled to 35 per cent of the commissions that Hammerschmidt was owed by Capannelli.

Statutes, Regulations and Rules Cited:

Real Estate and Business Brokers' Act, R.S.O. 1990, c. R-4, ss. 3(i), 5(f), 22, 30.

Counsel:

Guy Farrell, for the plaintiff.

Myron W. Shulgan, Q.C., for the defendant, Capannelli.

Raymond G. Colautti, for the defendant, Business Ventures Inc.

HAWKINS J.:--

The Parties

1 The plaintiff Anne Hammerschmidt is an experienced real estate salesperson. The defendant Capannelli Construction Limited (hereafter CCL) is a developer. As the result of minutes of settlement reached just before trial commenced, CCL was let out of the action by the plaintiff. The defendant, Business Ventures Inc. (BVI) is a real estate brokerage owned at some of the material times by one Fred Corp and, laterally, by Teresa Jankowski, who purchased the business from Corp.

The Issue

2 Hammerschmidt performed services for CCL in connection with the marketing and sales of condominium units. She is owed money in connection with these services. BVI claims that CCL must pay BVI for these services so that BVI can take its brokerage commission from the money before passing the balance on to Hammerschmidt.

3 CCL was interested in building a condominium in Windsor, Ontario to be known as the "Pinnacle". Peter Capannelli had done business with Hammerschmidt in the past and he called her to seek her advice.

4 In her past dealings with CCL, she had acted in the conventional way as a registered real estate salesperson registered with a registered broker and her compensation was always received through the broker with whom she was registered.

5 This time, the arrangement was different.

6 When first contacted by Peter Capannelli, Hammerschmidt was working as a registered real estate salesperson for a brokerage called "Country Wide" in Mississauga. In addition to her previous dealings with CCL, Hammerschmidt had had dealings with Fred Corp, also of Windsor and, as pointed out above, owner of BVI.

7 She arranged with Corp to "park", as the saying goes her salesperson's certificate with BVI to, as Hammerschmidt said in evidence "keep it alive". I heard no evidence nor submissions that a salesperson's certificate lapses or dies if not used or not lodged with the broker named in it. It may well be to avoid administrative and overhead charges which the salesperson would be responsible to pay the broker during, and in spite of, the salesperson's inactivity. In any case, Corp agreed to allow Hammerschmidt to park her certificate with him.

8 I return to Hammerschmidt's deal with CCL. It is the uncontroverted evidence of Hammerschmidt that she sat down with Natalina Capannelli (Wife of Peter Capannelli and secretary/treasurer of CCL) and they devised a plan to reduce the commission cost for the project by avoiding the involvement of a real estate brokerage.

9 To understand their plan, it is necessary now to look at the relevant provisions of the Real Estate and Business Brokers' Act R.S.O. 1990, c. R.4 which are sections 3(i)(a)(b)(c); section 5(f); section 22 and section 30.

Definitions

1. In this Act,

"broker" means a person who, for another or others, for compensation, gain or reward or hope or promise thereof, either alone or through one or more officials or salespersons, trades in real estate, or a person who holds himself, herself or itself out as such; ("courtier")

"real estate" includes real property, leasehold and business whether with or without premises, fixtures, stock-in-trade, goods or chattels in connection with the operation of the business; ("bien immeuble")

"salesperson means a person employed, appointed or authorized by a broker to trade in real estate; ("agent immobilier")

"trade" includes a disposition or acquisition of a transaction in real estate by sale, purchase, agreement for sale, exchange, option, lease, rental or otherwise and any offer or attempt to list real estate for the purpose of such a disposition or transaction, and any act, advertisement, conduct or negotiation, directly or indirectly, in furtherance of any disposition, acquisition, transaction, offer or attempt, and the verb "trade" has a corresponding meaning; ("opÈration", "effectuer des opÈrations")

Registration

3.(1) No person shall,

(a) trade in real estate as a broker unless the person is registered as a broker;

(b) trade in real estate as a salesperson unless he or she is registered as a salesperson of a registered broker;

(c) act on behalf of a corporation or partnership in connection with a trade in real estate unless the person and the corporation or partnership are registered as brokers. R.S.O. 1990, c. R.4, s. 3(1).

Exemptions

5. Registration shall not be required in respect of any trade in real estate by,

(f) a full-time salaried employee of a party to a trade where the employee is acting for or on behalf of his or her employer in respect of land situate in Ontario;

Action for commission or remuneration

22. No action shall be brought for commission or for remuneration for services in connection with a trade in real estate unless at the time or rendering the services the person bringing the action was registered or exempt from registration and the court may stay any such action at any time upon motion. R.S.O. 1990, c. R.4, s. 22.

Salespersons trading for other brokers

30. No salesperson shall trade in real estate on behalf of any broker other than the broker who, according to the records of the Registrar, is his or her employer, and no salesperson is entitled to or shall accept any commission or other remuneration for trading in real estate from any person except the broker who is registered as his or her employer. R.S.O. 1990, c. R.4, s. 30.

10 As can be readily seen, if it could be established that Hammerschmidt was a full-time, salaried employee of CCL she would not need to be registered with respect to sales of Pinnacle condominiums. It is Hammerschmidt's evidence that she told Mr. Corp (the broker with whom her certificate of registration was "parked") that she was going to be selling units of Pinnacle for a commission and that he didn't care how she was recompensed, he wanted no part of her earnings. Mr. Corp (called by the Plaintiff) says she told him she was going to be a salaried employee of CCL. Corp also says that he knew that she was selling for commissions. I am not certain when he so knew, but it doesn't matter because he confirmed Hammerschmidt's evidence that he wanted no part of her earnings however derived and whatever called.

11 Ms. Hammerschmidt began her activities on behalf of CCL in about January 1997. In the early stages she was involved with drawings, plans, details of suites, appliances and similar details. In the early stages there was no product for her to sell so she received $3,500.00 per month. Whether it was the case ab initio or a change in an agreement made in October 1997, all such payments from 1 September, 1997 were to be treated as draws against commission. Payments made prior to 1 September, 1997 were hers to keep. BVI (Jancowski) takes no exception to those pre September 1997 payments being treated as salary and makes no claim in respect of them.

12 Ms. Hammerschmidt and CCL formalized this arrangement with a contract "made in" 1 December 1997.

13 It is difficult to imagine an agreement which could point more towards independent contractor and less towards employee. It is called a "contract for services". Ms. Hammerschmidt is described as the "contractor". The preamble adverts to her being a "licensed real estate agent" which, of course, would be irrelevant if she was to become CCL's employee under the agreement. The parties agree that she provide such services as an independent contractor and not as an employee. At least from 1 September 1997 she received no salary, her compensation is by 2% commission on the sales price of the units.

14 Her work at CCL was full-time and counsel for BVI (Jankowski) concedes this.

15 That apart, there is no resemblance between the arrangement entered into between Ann Hammerschmidt and CCL and the arrangement required by section 5 (save, of course, that the land was situated in Ontario).

16 The question that arises is this: if Hammerschmidt and CCL had devised a scheme to try to fit into the section 5 (exemption from registration), why on earth would they produce the contract that they did?

17 The answer must be that they thought they were free to have the contract reflect their actual arrangement because BVI (Corp) had disclaimed any interest in her earnings from CCL.

18 I find it a fact that Ms. Hammerschmidt was, from 1 September 1997, not a salaried employee of CCL and not exempt from registration by section 5.

19 It follows from the application of section 30 that Ms. Hammerschmidt is not entitled to nor shall accept any commission or other remuneration for trading in the Pinnacle units except from the broker who is registered as her employer which at all material times was BVI (Corp) or BVI (Jankowski).

20 BVI (Corp) was sold to Teresa Jankowski BVI (Jankowski) on 14 August 1998. Teresa Jankowski and her husband Ted her worked for BVI (Corp) up to 14 August 1998 as registered salespersons.

21 It appears to be the plaintiff's position that BVI (Jankowski) is not entitled to any part of her commission from CCL because BVI (Corp) disclaimed any interest.

22 If it were merely a question of contract there would be nothing to prevent BVI (Corp) from agreeing to make no claim to any part of Hammerschmidt's earnings from CCL. However, it is not merely a question of contract.

23 The combined effect of the Hammerschmidt/CCL contract (that Hammerschmidt should be compensated by way of commission on sales of Pinnacle units) and the Hammerschmidt BVI (Corp) agreement that she, whilst registered with BVI (Corp) was free to accept remuneration for trading in real estate from a person other than BVI (Corp) is to create a situation in direct conflict with provisions of section 30 of the Act.

24 The pleadings in this case are of interest. The plaintiff sought to enforce her contract with CCL and to recover damages from BVI for interfering with her commission contract with CCL CCL sought to avoid paying commission based on the ineligibility of its commission agreement with Hammerschmidt being contrary to the provisions of section 30.

25 BVI (Jankowski) claimed that commissions had to be paid to it to comply with section 30 (after receipt of which it would turn over 65% to Ms. Hammerschmidt.

26 I find most apposite the words of Krever J. (As he then was.) in Royal Bank of Canada v. Grobman (1977) 18 O.R. (2d) 636 at page 653 (HCJ) which is as follows:

"The serious consequences of invalidating the contract, the social utility of those consequences and a determination of the class of persons for whom the prohibition was enacted are all factors which the court will weigh".

27 The provisions of the Act cited supra are not, it seems to me, enacted to be ignored. They are there for the protection of the public and, obviously, for the protection of brokers against dishonest salespersons.

28 It might be that the plaintiff could have negotiated a deal with BVI (Corp) and CCL for a commission rate that could be paid through the broker in compliance with section 30.

29 It must be remembered that Ms. Jankowski, who bought the shares of BVI (Corp), was not a party to any waiver of BVI's right to commission.

30 The balance of the commissions owing by CCL to Hammerschmidt amount to $195,847.00. As a registered salesperson making no overhead contribution, she would have received 65% of commissions and BVI the remaining 35%.

31 There will, therefore, be judgement for BVI against Ann Hammerschmidt for $68, 546.45. Since judgment was reserved, I may be spoken to on the question of interest and costs.

HAWKINS J.

cp/d/qlala